BRYN MAWR BANK CORP (Form: 10-K, Received: 02/28/2020 17:05:52)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)



☒	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to

Commission file number 001-35746.

BRYN MAWR BANK CORPORATION

(Exact name of registrant as specified in its charter)



Pennsylvania			23-2434506
(State of other jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)

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



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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock ($1 par value)	BMTC	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒ No ☐

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required 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 than 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 every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

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

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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 by Rule 12b-2 of the Act):

Yes ☐ No ☒

The aggregate market value of shares of common stock held by non-affiliates of the registrant (including fiduciary accounts administered by affiliates) was $742,260,441 on June 30, 2019 and was based upon the last sales price at which our common stock was quoted on the NASDAQ Stock Market on June 30, 2019.*

As of February 20, 2020, there were 20,088,025 shares of common stock outstanding.

Documents Incorporated by Reference: Portions of the Definitive Proxy Statement of registrant to be filed with the Commission pursuant to Regulation 14A with respect to the registrant’s Annual Meeting of Shareholders to be held on April 16, 2020 (“2020 Proxy Statement”), as indicated in Parts II and III, are incorporated into this Form 10-K by reference.



*	The registrant does not admit by virtue of the foregoing that its officers and directors are “affiliates” as defined in Rule 405.

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Form 10-K

Bryn Mawr Bank Corporation

Index



Item No.		Page

	Part I
1.	Business	3
1A.	Risk Factors	14
1B.	Unresolved Staff Comments	28
2.	Properties	28
3.	Legal Proceedings	28
4.	Mine Safety Disclosures	28

	Part II

5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
6.	Selected Financial Data	31
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)	33
7A.	Quantitative and Qualitative Disclosures about Market Risk	62
8.	Financial Statements and Supplementary Data	63
9.	Change in and Disagreements with Accountants on Accounting and Financial Disclosure	135
9A.	Controls and Procedures	135
9B.	Other Information	136

	Part III

10.	Directors, Executive Officers and Corporate Governance	136
11.	Executive Compensation	136
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	136
13.	Certain Relationships and Related Transactions, Director Independence	136
14.	Principal Accounting Fees and Services	136

	Part IV

15.	Exhibits and Financial Statement Schedules	137

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PART I

ITEM 1. BUSINESS

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 the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). As such, they are only predictions and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of Bryn Mawr Bank Corporation and its direct and indirect subsidiaries (collectively, the “Corporation”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include statements with respect to the Corporation’s financial goals, business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage servicing rights, the effect of changes in accounting standards, and market and pricing trends loss. The words “may,” “might,” “would,” “could,” “will,” “likely,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “forecast,” “project,” “predict,” “believe” and similar expressions are intended to identify statements that constitute 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:


•	local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those impacts;


•	our need for capital;


•	reduced demand for our products and services, and lower revenues and earnings due to an economic recession;


•	lower earnings due to 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, including those concerning banking, securities. insurance or taxes, that adversely affect our business, the financial services industry as a whole, the Corporation, or our subsidiaries individually or collectively;


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


•	effectiveness of capital management strategies and activities;


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


•	uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021;

•

the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected Credit Loss (“CECL”) model, which will change how we estimate credit losses and will increase the required level of our allowance for credit losses after adoption on January 1, 2020;


•	inflation, securities market and monetary fluctuations, including changes in 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;


•	results of examinations by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) of the Corporation, including the possibility that such regulator may, among other things, require us to increase our allowance for loan losses or to write down assets, or restrict our ability to: engage in new products or services;

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engage in future mergers or acquisitions; open new branches; pay future dividends; or otherwise take action, or refrain from taking action, in order to correct activities or practices that the Federal Reserve believes may violate applicable law or constitute an unsafe or unsound banking practice;


•	variances in common stock outstanding and/or volatility in common stock price;


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

•

risks related to our past or future, if any, mergers and acquisitions, including, but not limited to: reputational risks; client and customer retention risks; diversion of management’s time for integration-related issues; integration may take longer than anticipated or cost more than expected; anticipated benefits of the merger or acquisition, including any anticipated cost savings or strategic gains, may take longer or be significantly harder to achieve, or may not be realized;


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


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


•	our success in continuing to generate new business in our existing markets, as well as 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 or introduce competitive new products and services on a timely, cost-effective basis, including investment and banking products that meet customers’ needs;


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


•	extent to which products or services previously offered (including but not limited to mortgages and asset back securities) require us to incur liabilities or absorb losses not contemplated at their initiation or origination;


•	rapid technological developments and changes;


•	technological systems failures, interruptions and security breaches, internally or through a third-party provider, could negatively impact our operations, customers and/or reputation;

•

competitive pressure and practices of 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;


•	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, global health risks or pandemics, acts of terrorism, wars or political conflicts);


•	ability to retain key employees and members of senior management;


•	changes in relationships with employees, customers, and/or suppliers;


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


•	our need for capital, or our ability to control operating costs and expenses or manage loan and lease delinquency rates;


•	other material adverse changes in operations or earnings; and


•	our success in managing the risks involved in the foregoing.

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All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by the factors, risks, and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled “Risk Factors” beginning on page 14 of this Report. 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, whether the result of new information, future events, uncertainties or otherwise, as of any future date. In light of these risks, uncertainties and assumptions, you should not put undue reliance on any forward-looking statements discussed in this Report or incorporated documents.

GENERAL

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 (“BMBC”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of BMBC. The Bank and BMBC are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. BMBC and its direct and indirect subsidiaries (collectively, the “Corporation”) 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 43 banking locations, seven wealth management offices and two insurance and risk management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in Delaware; and Mercer and Camden Counties in New Jersey. The common stock of BMBC trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

The goal of the Corporation is to become the premier community bank and wealth management organization in the greater Philadelphia area. The Corporation’s strategy to achieve this goal includes investing in people and technology to support its growth, leveraging the strength of its brand, targeting high-potential markets for expansion, basing its sales strategy on relationships and concentrating on core product solutions. The Corporation strives to strategically broaden the scope of its product offerings, engaging in inorganic growth by selectively acquiring small to mid-sized banks, insurance brokerages, wealth management companies, and advisory and planning services firms, and hiring high-performing teams where strategically advantageous.

WEBSITE DISCLOSURES

BMBC files with the SEC and makes available, free of charge, through its website, BMBC's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with the SEC. These reports can be obtained on the Corporation’s website at www.bmt.com by following the link, “About BMT,” followed by “Investor Relations.” The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 10-K.

OPERATIONS

•Bryn Mawr Bank Corporation

Bryn Mawr Bank Corporation is a Pennsylvania corporation, formed in 1986 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956. BMBC is the sole shareholder of the stock of the Bank.

BMBC had no active staff as of December 31, 2019. Collectively, the Corporation had 632 full-time and 52 part-time employees, totaling 661 full time equivalent staff as of December 31, 2019.

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ACTIVE SUBSIDIARIES OF BMBC

As of December 31, 2019, BMBC has four active subsidiaries which provide various services as described below. Additionally, BMBC and the Bank acquired certain subsidiaries in the merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into BMBC on December 15, 2017 (the “Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the “RBPI Merger”), pursuant to the Agreement and Plan of Merger, by and between RBPI and BMBC, dated as of January 30, 2017 (the “Agreement”) that are not included in the below descriptions as they are not integral or significant to our business. Further, in connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II, which are discussed in more detail in Note 1, “Summary of Significant Accounting Policies,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

•The Bryn Mawr Trust Company

The Bank is engaged in commercial and retail banking business, providing basic banking services, including the acceptance of demand, time and savings deposits and the origination of commercial, real estate and consumer loans and other extensions of credit including leases. The Bank also provides a full range of wealth management services including trust administration and other related fiduciary services, custody services, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax services, financial planning and brokerage services. The Bank’s employees are included in the Corporation’s employment numbers above.

•Lau Associates LLC

Lau Associates LLC, a SEC-registered investment advisor, is an independent, family wealth office serving high net worth individuals and families, with special expertise in planning intergenerational inherited wealth. Lau Associates LLC is headquartered in Greenville, Delaware, and is a wholly-owned subsidiary of BMBC. Effective January 1, 2020, the business of Lau Associates LLC was transitioned into the Wealth Management Division of the Bank.

•The Bryn Mawr Trust Company of Delaware

The Bryn Mawr Trust Company of Delaware (“BMTC-DE”) is a limited-purpose trust company located in Greenville, DE and has the ability to be named and serve as a corporate fiduciary under Delaware law. Being able to serve as a corporate fiduciary under Delaware law is advantageous as Delaware statutes are widely recognized as being favorable with respect to the creation of tax-advantaged trust structures, LLCs and related wealth transfer vehicles for families and individuals throughout the United States. BMTC-DE is a wholly-owned subsidiary of BMBC.

•BMT Investment Advisers

BMT Investment Advisers (“BMTIA”), a Delaware statutory trust and wholly-owned subsidiary of BMBC, was established in May 2017. BMTIA is an SEC-registered investment adviser which serves as investment adviser to BMT Investment Funds, a Delaware statutory trust. There is an Investment Advisory Agreement between BMTIA and BMT Investment Funds, on behalf of the BMT Multi-Cap Fund. The BMT Multi-Cap Fund is a broadly diversified mutual fund focused on equity investments.

ACTIVE SUBSIDIARIES OF THE BANK

The Bank has three active subsidiaries providing various services as described below:

•KCMI Capital, Inc.

KCMI Capital, Inc. (“KCMI”) is a wholly-owned subsidiary of the Bank, located in Media, Pennsylvania, which was established on October 1, 2015. KCMI specializes in providing non-traditional commercial mortgage loans to small businesses throughout the United States.

•BMT Insurance Advisors, Inc. f/k/a Powers Craft Parker and Beard, Inc.

BMT Insurance Advisors, Inc. (“BMT Insurance Advisors”), formerly known as Powers Craft Parker and Beard, Inc. (“PCPB”), is a wholly-owned subsidiary of the Bank, headquartered in Berwyn, Pennsylvania. BMT Insurance Advisors is a full-service insurance agency, through which the Bank offers insurance and related products and services to its customer base.

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This includes casualty, property and allied insurance lines, as well as life insurance, annuities, medical insurance and accident and health insurance for groups and individuals.

•Bryn Mawr Equipment Finance, Inc.

Bryn Mawr Equipment Finance, Inc. (“BMEF”), a wholly-owned subsidiary of the Bank, is a Delaware corporation registered to do business in Pennsylvania. BMEF is a small-ticket equipment financing company servicing customers nationwide from its Montgomery County, Pennsylvania location.

BUSINESS COMBINATIONS

The Corporation engaged in the following business combinations since January 1, 2014:

•Domenick & Associates

The Bank’s subsidiary, BMT Insurance Advisors, completed the acquisition of Domenick & Associates (“Domenick”), a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, $225 thousand was paid during the third quarter of 2019, and two contingent cash payments, not to exceed $250 thousand each, will be payable in 2020 and 2021, subject to the attainment of certain targets during the related periods.

•Royal Bancshares of Pennsylvania, Inc.

On December 15, 2017, the RBPI Merger was completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,101,316 shares of BMBC’s common stock. Shareholders of RBPI received 0.1025 shares of BMBC's common stock for each share of RBPI Class A common stock and 0.1179 shares of BMBC's common stock for each share of RBPI Class B common stock owned as of the Effective Date of the RBPI Merger, with cash-in-lieu of fractional shares totaling $7 thousand. The RBPI Merger initially added $566.2 million of loans, $121.6 million of investments, $593.2 million of deposits, twelve new branches and a loan production office. The acquisition of RBPI expanded the Corporation’s footprint within Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as well as Camden and Mercer Counties in New Jersey.

•Harry R. Hirshorn & Company, Inc.

On May 24, 2017, the Bank acquired Harry R. Hirshorn & Company, Inc. (“Hirshorn”), an insurance agency headquartered in the Chestnut Hill section of Philadelphia. Consideration totaled $7.5 million, of which $5.8 million was paid at closing, two contingent cash payments of $575 thousand were paid in 2018 and 2019, and one contingent cash payment not to exceed $575 thousand will be payable in 2020, subject to certain conditions. The acquisition of Hirshorn expanded the Bank’s footprint into this desirable northwest corner of Philadelphia. Immediately after acquisition, Hirshorn was merged into PCPB (now BMT Insurance Advisors).

•Robert J. McAllister Agency, Inc.

On April 1, 2015, the acquisition of Robert J. McAllister, Inc. (“RJM”), an insurance brokerage headquartered in Rosemont, Pennsylvania, was completed. Consideration totaled $1.0 million, of which $500 thousand was paid at closing, two contingent payments of $85 thousand (out of a maximum of $100 thousand) were paid during the second quarters of 2018 and 2016, one contingent payment of $100 thousand was paid during the second quarter of 2017, one contingent payment of $75 thousand was paid during the second quarter of 2019, and one remaining contingent cash payment, not to exceed $100 thousand, will be payable in 2020, subject to certain conditions. Shortly after acquisition, RJM was merged into PCPB (now BMT Insurance Advisors).

•Continental Bank Holdings, Inc.

On January 1, 2015, the merger of Continental Bank Holdings, Inc. (“CBH”) with and into BMBC (the “CBH Merger”), and the merger of Continental Bank with and into the Bank, were completed. Consideration totaled $125.1 million, comprised of 3,878,304 shares of BMBC’s common stock, the assumption of options to purchase BMBC's common stock valued at $2.3 million, $1.3 million for the cash-out of certain warrants, and $2 thousand cash in lieu of fractional shares. The CBH Merger initially added $424.7 million of loans, $181.8 million of investments, $481.7 million of deposits and ten new branches. The acquisition of CBH enabled the Corporation to expand its footprint within Montgomery County, Pennsylvania.

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•BMT Insurance Advisors, Inc. f/k/a Powers Craft Parker and Beard, Inc.

On October 1, 2014, the acquisition of PCPB, an insurance brokerage previously headquartered in Rosemont, Pennsylvania, was completed. The consideration paid by the Corporation was $7.0 million, of which $5.4 million was paid at closing and three contingent payments, of $542 thousand each, which were paid during the fourth quarters of 2015, 2016 and 2017. The addition enabled the Corporation to offer a full range of insurance products to both individual and business clients. As described above, the subsequent acquisitions of RJM and Hirshorn were merged into PCPB, which was renamed BMT Insurance Advisors. The resulting combined entity, operating from two locations, under the name BMT Insurance Advisors, has enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients.

SOURCES OF THE CORPORATION’S REVENUE

Continuing Operations

See Note 31, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information. The Corporation had no discontinued operations in 2017, 2018 or 2019.

DESCRIPTION OF BUSINESS AND COMPETITION

BMBC and its subsidiaries, including the Bank, compete for deposits, loans, wealth management and insurance services in Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania, New Castle County in Delaware, and Mercer and Camden Counties in New Jersey. The Corporation has 43 banking locations, seven wealth management offices and two insurance and risk management locations.

The markets in which the Corporation competes are highly competitive. The Corporation’s direct competition in attracting business is mainly from commercial banks, investment management companies, savings and loan associations, trust companies and insurance agencies. The Corporation also competes with credit unions, on-line banking enterprises, consumer finance companies, mortgage companies, insurance companies, stock brokerage companies, investment advisory companies and other entities providing one or more of the services and products offered by the Corporation.

The Corporation is able to compete with the other firms because of its consistent level of customer service, excellent reputation, professional expertise, comprehensive product line, and its competitive rates and fees. However, there are several negative factors which can hinder the Corporation’s ability to compete with larger institutions such as its limited number of locations, smaller advertising and technology budgets, and a general inability to scale its operating platform, due to its size.

Mergers, acquisitions and organic growth through subsidiaries have contributed significantly to the growth and expansion of the Corporation. The acquisition of Lau Associates LLC in July 2008 and the formation of BMTC-DE allowed the Corporation to establish a presence in the State of Delaware, where it competes for wealth management business. The November 2012 acquisition of certain loan and deposit accounts and a branch location from First Bank of Delaware enabled the Corporation to further expand its banking segment in the greater Wilmington, Delaware area.

The Corporation’s first significant bank acquisition, the July 2010 merger with First Keystone Financial, Inc., expanded the Corporation’s footprint significantly into Delaware County, Pennsylvania. This was followed by the January 2015 merger with CBH and the December 2017 merger with RBPI. These bank mergers further expanded the Corporation’s reach well into the surrounding counties in Pennsylvania, including five branches within the City of Philadelphia, and also expanded the Bank’s footprint into southern and central New Jersey.

The acquisition of the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May 2011 enabled the Bank’s Wealth Management Division to extend into central Pennsylvania by continuing to operate the former PWMG offices located in Hershey, Pennsylvania. The May 2012 acquisition of the Davidson Trust Company allowed the Corporation to further expand its range of services and bring deeper market penetration in our core market area.

The October 2014 acquisition of PCPB, April 2015 acquisition of RJM, the May 2017 acquisition of Hirshorn, and the May 2018 acquisition of Domenick enabled the Bank to expand its range of insurance solutions to both individuals as well as business clients. The Hirshorn transaction, in particular, established a key location in the desirable northwest corner of Philadelphia, affording the Bank greater opportunity to provide insurance and other financial solutions to both existing and potential clients.

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In October 2015, KCMI was established which enabled the Corporation to compete, on a national level, for a specialized lending market that focuses on non-traditional small business borrowers with well-established businesses. In addition to KCMI, BMEF, which specializes in equipment leases for small- and mid-sized businesses, also competes on a national scale.

In May 2017, BMTIA was established. BMTIA is an SEC-registered investment adviser which serves as investment adviser to BMT Investment Funds, a Delaware statutory trust. There is an Investment Advisory Agreement between BMTIA and BMT Investment Funds, on behalf of the BMT Multi-Cap Fund. The BMT Multi-Cap Fund is a broadly diversified mutual fund focused on equity investments which the Corporation’s wealth management division is able to offer as an investment choice to its client base.

SUPERVISION AND REGULATION

BMBC and its subsidiaries, including the Bank, are subject to extensive regulation under both federal and state law. To the extent that the following information describes statutory provisions and regulations which apply to the Corporation and its subsidiaries, it is qualified in its entirety by reference to those statutory provisions and regulations:

•Bank Holding Company Regulation

BMBC, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the “Act”). The Act limits the business of bank holding companies to banking, managing or controlling banks, performing certain servicing activities for subsidiaries and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. BMBC and its non-bank subsidiaries are subject to the supervision of the Federal Reserve Board and BMBC is required to file, with the Federal Reserve Board, an annual report and such additional information as the Federal Reserve Board may require pursuant to the Act and the regulations which implement the Act. The Federal Reserve Board also conducts inspections of BMBC and each of its non-banking subsidiaries.

The Act requires each bank holding company to obtain prior approval by the Federal Reserve Board before it may acquire (i) direct or indirect ownership or control of more than 5% of the voting shares of any company, including another bank holding company or a bank, unless it already owns a majority of such voting shares, or (ii) all, or substantially all, of the assets of any company.

The Act also prohibits a bank holding company from engaging in, or from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve Board, by order or regulation, has found such activities to be so closely related to banking or to managing or controlling banks as to be appropriate. The Federal Reserve Board has, by regulation, determined that certain activities are so closely related to banking or to managing or controlling banks, so as to permit bank holding companies, such as BMBC, and its subsidiaries formed for such purposes, to engage in such activities, subject to obtaining the Federal Reserve Board’s approval in certain cases.

Under the Act, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension or provision of credit, lease or sale of property or furnishing any service to a customer on the condition that the customer provide additional credit or service to the bank, to its bank holding company or any other subsidiaries of its bank holding company or on the condition that the customer refrain from obtaining credit or service from a competitor of its bank holding company. Further, the Bank, as a subsidiary bank of a bank holding company, such as BMBC, is subject to certain restrictions on any extensions of credit it provides to BMBC or any of its non-bank subsidiaries, investments in the stock or securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower.

In addition, the Federal Reserve Board may issue cease-and-desist orders against bank holding companies and non-bank subsidiaries to stop actions believed to present a serious threat to a subsidiary bank. The Federal Reserve Board also regulates certain debt obligations and changes in control of bank holding companies.

Under the Federal Deposit Insurance Act, as amended by the Dodd-Frank Act, a bank holding company is required to serve as a source of financial strength to each of its subsidiary banks and to commit resources, when so required, including capital funds during periods of financial stress, to support each such bank. Consistent with this requirement to serve as a “source of strength” for subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common

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shareholders has been sufficient to fund fully the dividends, and the prospective rate of earnings retention appears to be consistent with the company’s capital needs, asset quality and overall financial condition.

Federal law also grants to federal banking agencies the power to issue cease and desist orders when a depository institution or a bank holding company or an officer or director thereof is engaged in or is about to engage in unsafe and unsound practices. The Federal Reserve Board may require a bank holding company, such as BMBC, to discontinue certain of its activities or activities of its other subsidiaries, other than the Bank, or divest itself of such subsidiaries if such activities cause serious risk to the Bank and are inconsistent with the Act or other applicable federal banking laws.

•Federal Reserve Board and Pennsylvania Department of Banking and Securities Regulation

The Bank is regulated and supervised by the Pennsylvania Department of Banking and Securities (the “Department of Banking”) and subject to regulation by the Federal Reserve Board and the FDIC. The Department of Banking and the Federal Reserve Board regularly examine the Bank’s reserves, loans, investments, management practices and other aspects of its operations and the Bank must furnish periodic reports to these agencies. The Bank is a member of the Federal Reserve System.

The Bank’s operations are subject to certain requirements and restrictions under federal and state laws, including requirements to maintain reserves against deposits, limitations on the interest rates that may be paid on certain types of deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, limitations on the types of investments that may be made and the types of services which may be offered. Various consumer laws and regulations also affect the operations of the Bank. These regulations and laws are intended primarily for the protection of the Bank’s depositors and customers rather than holders of BMBC’s stock.

The regulations of the Department of Banking restrict the amount of dividends that can be paid to BMBC by the Bank. Payment of dividends is restricted to the amount of the Bank's net income during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve Board. Accordingly, the dividend payable by the Bank to BMBC beginning on January 1, 2020 is limited to net income not yet earned in 2020 plus the Bank’s total retained net income for the combined two years ended December 31, 2018 and 2019 of $57.3 million. The amount of dividends paid by the Bank may not exceed a level that reduces capital levels to below levels that would cause the Bank to be considered less than adequately capitalized. The payment of dividends by the Bank to BMBC is the source on which BMBC currently depends to pay dividends to its shareholders.

As a bank incorporated under and subject to Pennsylvania banking laws and insured by the FDIC, the Bank must obtain the prior approval of the Department of Banking and the Federal Reserve Board before establishing a new branch banking office. Depending on the type of bank or financial institution, a merger of the Bank with another institution is subject to the prior approval of one or more of the following: the Department of Banking, the FDIC, the Federal Reserve Board, the Office of the Comptroller of the Currency and any other regulatory agencies having primary supervisory authority over any other party to the merger. An approval of a merger by the appropriate bank regulatory agency would depend upon several factors, including whether the merged institution is a federally-insured state bank, a member of the Federal Reserve System, or a national bank. Additionally, any new branch expansion or merger must comply with branching restrictions provided by state law. The Pennsylvania Banking Code permits Pennsylvania banks to establish branches anywhere in the state.

On October 24, 2012, Pennsylvania enacted three laws known as the “Banking Law Modernization Package,” all of which became effective on December 24, 2012. The intended goal of the new law, which applies to the Bank, is to modernize Pennsylvania’s banking laws and to reduce regulatory burden at the state level where possible, given the increased regulatory demands at the federal level as described below.

The law also permits banks as well as the Department of Banking to disclose formal enforcement actions initiated by the Department of Banking, clarifies that the Department of Banking has examination and enforcement authority over subsidiaries as well as affiliates of regulated banks and bolsters the Department of Banking’s enforcement authority over its regulated institutions by clarifying its ability to remove directors, officers and employees from institutions for violations of laws or orders or for any unsafe or unsound practice or breach of fiduciary duty. Changes to existing law also allow the Department of Banking to assess civil money penalties of up to $25,000 per violation.

The law also sets a new standard of care for bank officers and directors, applying the same standard that exists for non-banking corporations in Pennsylvania. The standard is one of performing duties in good faith, in a manner reasonably believed to be in the best interests of the institutions and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. Directors may rely in good faith on information, opinions

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and reports provided by officers, employees, attorneys, accountants, or committees of the board, and an officer may not be held liable simply because he or she served as an officer of the institution.

•Deposit Insurance Assessments

The deposits of the Bank are insured by the FDIC up to the limits set forth under applicable law and are subject to deposit insurance premium assessments. The FDIC imposes a risk based deposit premium assessment system, under which the amount of FDIC assessments paid by an individual insured depository institution, such as the Bank, is based on the level of risk incurred in its activities.

In addition to deposit insurance assessments, banks are subject to assessments to pay the interest on Financing Corporation bonds. The Financing Corporation was created by Congress to issue bonds to finance the resolution of failed thrift institutions. The Financing Corporation assessment became final in 2019. Payments of the Financing Corporation assessment during the year ended December 31, 2019 totaled $12 thousand.

•Government Monetary Policies

The monetary and fiscal policies of the Federal Reserve Board and the other regulatory agencies have had, and will probably continue to have, an important impact on the operating results of the Bank through their power to implement national monetary policy in order to, among other things, curb inflation or combat a recession. The monetary policies of the Federal Reserve Board may have a major effect upon the levels of the Bank’s loans, investments and deposits through the Federal Reserve Board’s open market operations in United States government securities, through its regulation of, among other things, the discount rate on borrowing of depository institutions, and the reserve requirements against depository institution deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.

The earnings of the Bank and, therefore, of BMBC are affected by domestic economic conditions, particularly those conditions in the trade area as well as the monetary and fiscal policies of the United States government and its agencies.

•Safety and Soundness

The Federal Reserve Board also has authority to prohibit a bank holding company from engaging in any activity or transaction deemed by the Federal Reserve Board to be an unsafe or unsound practice. The payment of dividends could, depending upon the financial condition of the Bank or BMBC, be such an unsafe or unsound practice and the regulatory agencies have indicated their view that it generally would be an unsafe and unsound practice to pay dividends except out of current operating earnings. The ability of the Bank to pay dividends in the future is presently and could be further influenced, among other things, by applicable capital guidelines discussed below or by bank regulatory and supervisory policies. The ability of the Bank to make funds available to BMBC is also subject to restrictions imposed by federal law. The amount of other payments by the Bank to BMBC is subject to review by regulatory authorities having appropriate authority over the Bank or BMBC and to certain legal limitations.

•Capital Adequacy

Federal and state banking laws impose on banks certain minimum requirements for capital adequacy. Federal banking agencies have issued certain “risk-based capital” guidelines, and certain “leverage” requirements on member banks such as the Bank. By policy statement, the Department of Banking also imposes those requirements on the Bank. Banking regulators have authority to require higher minimum capital ratios for an individual bank or bank holding company in view of its circumstances.

Minimum Capital Ratios: The risk-based guidelines require all banks to maintain three “risk-weighted assets” ratios. The first is a minimum ratio of total capital (“Tier I” and “Tier II” capital) to risk-weighted assets equal to 8.00%; the second is a minimum ratio of “Tier I” capital to risk-weighted assets equal to 6.00%; and the third is a minimum ratio of “Common Equity Tier I” capital to risk-weighted assets equal to 4.5%. Assets are assigned to five risk categories, with higher levels of capital being required for the categories perceived as representing greater risk. In making the calculation, certain intangible assets must be deducted from the capital base. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets.

The risk-based capital rules also account for interest rate risk. Institutions with interest rate risk exposure above a normal level would be required to hold extra capital in proportion to that risk. A bank’s exposure to declines in the economic

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value of its capital due to changes in interest rates is a factor that the banking agencies will consider in evaluating a bank’s capital adequacy. The rule does not codify an explicit minimum capital charge for interest rate risk. Management currently monitors and manages its assets and liabilities for interest rate risk, and believes its interest rate risk practices are prudent and are in-line with industry standards. Management is not aware of any new or proposed rules or standards relating to interest rate risk that would materially adversely affect our operations.

The “leverage” ratio rules require banks which are rated the highest in the composite areas of capital, asset quality, management, earnings, liquidity and sensitivity to market risk to maintain a ratio of “Tier I” capital to “adjusted total assets” (equal to the bank’s average total assets as stated in its most recent quarterly Call Report filed with its primary federal banking regulator, minus end-of-quarter intangible assets that are deducted from Tier I capital) of not less than 4.00%.

For purposes of the capital requirements, “Tier I” or “core” capital is defined to include common stockholders’ equity and certain noncumulative perpetual preferred stock and related surplus. “Tier II” or “qualifying supplementary” capital is defined to include a bank’s allowance for loan and lease losses up to 1.25% of risk-weighted assets, plus certain types of preferred stock and related surplus, certain “hybrid capital instruments” and certain term subordinated debt instruments. “Common Equity Tier I” capital is defined as the sum of common stock instruments and related surplus net of treasury stock, retained earnings, accumulated other comprehensive income, and qualifying minority interests.

In addition to the capital requirements discussed above, banks are required to maintain a “capital conservation buffer” above the regulatory minimum capital requirements, which must consist entirely of common equity Tier I capital.

The capital conservation buffer has been phased-in over a four-year period, which began on January 1, 2016, as follows: the maximum buffer was 0.625% of risk-weighted assets for 2016, 1.25% for 2017 and 1.875% for 2018, and effective as of January 1, 2019, the capital conservation buffer has been fully phased in at 2.5%.

Institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The capital requirement rules, which were finalized in July 2013, implement revisions and clarifications consistent with Basel III regarding the various components of Tier I capital, including common equity, unrealized gains and losses, as well as certain instruments that no longer qualify as Tier I capital, some of which are being phased out over time. However, small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Corporation) will be able to permanently include non-qualifying instruments that were issued and included in Tier I or Tier II capital prior to May 19, 2010 in additional Tier I or Tier II capital until they redeem such instruments or until the instruments mature.

The Basel III final framework provides for a number of deductions from and adjustments to Common Equity Tier 1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from Common Equity Tier 1 to the extent that any one such category exceeds 10% of Common Equity Tier 1 or all such categories in the aggregate exceed 15% of Common Equity Tier 1.

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

In 2018, the federal bank regulatory agencies issued a variety of proposals and made statements concerning regulatory capital standards. These proposals touched on such areas as commercial real estate exposure, credit loss allowances under generally accepted accounting principles, capital requirements for covered swap entities, among others. Public statements by key agency officials have also suggested a revisiting of capital policy and supervisory approaches on a going-forward basis. We will be assessing the impact on us of these new regulations and supervisory approaches as they are proposed and implemented.

In addition, the federal banking agencies have jointly issued a final rule whereby most qualifying community banking organizations with less than $10 billion in total consolidated assets that meet risk-based qualifying criteria and have a community bank leverage ratio (“CBLR”) of greater than 9 percent would be able to opt into a new CBLR framework. Such a

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community banking organization would not be subject to other risk-based and leverage capital requirements (including the Basel III and Basel IV requirements) and would be considered to have met the well capitalized ratio requirements. The CBLR is determined by dividing a financial institution’s tangible equity capital by its average total consolidated assets. The final rule further describes what is included in tangible equity capital and average total consolidated assets. An insured depository institution that opts into the CBLR and that subsequently ceases to meet any qualifying criteria in a future period and has a leverage ratio greater than 8% will be allowed a grace period of two reporting periods to satisfy the CBLR qualifying criteria or comply with the generally applicable capital requirements. An insured depository institution that opts into the CBLR may opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rule. Although we have not yet determined to opt into the CBLR framework, we will continue to analyze the framework and in the future may determine to opt into the framework, though there can be no assurances that we will be eligible to opt into the framework in the future, or that we will continue to be eligible for the CBLR framework if and when we opt into the CBLR framework. We are continuing to review how this and other capital rules and proposals might impact the operations of the Bank.

•Prompt Corrective Action

Federal banking law mandates certain “prompt corrective actions,” which Federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital category into which a Federally regulated depository institution falls. Regulations have been adopted by the Federal bank regulatory agencies setting forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution that is not adequately capitalized.

Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as “well capitalized”:

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

(ii)a Tier I capital ratio of 8%;

(iii)a total capital ratio of 10%; and

(iv)a Tier I leverage ratio of 5%.

An undercapitalized institution is required to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on the payment of dividends, a limitation on asset growth and expansion, and in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person”. Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution’s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized” and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership. The Bank is currently regarded as “well capitalized” for regulatory capital purposes. See Note 28, “Regulatory Capital Requirements,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding the Bank’s and BMBC’s regulatory capital ratios.

•Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act (“GLB Act”) repealed provisions of the Glass-Steagall Act, which prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.

The GLB Act amended the Glass-Steagall Act to allow new “financial holding companies” (“FHC”) to offer banking, insurance, securities and other financial products to consumers. Specifically, the GLB Act amended section 4 of the Act in order to provide for a framework for the engagement in new financial activities. A bank holding company may elect to become a financial holding company if all its subsidiary depository institutions are well-capitalized and well-managed. If these requirements are met, a bank holding company may file a certification to that effect with the Federal Reserve Board and declare that it elects to become an FHC. After the certification and declaration is filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the Federal Reserve Board to be financial in nature or incidental to such financial activity. Bank holding companies may engage in financial activities without prior notice to the Federal Reserve

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Board if those activities qualify under the new list in section 4(k) of the Act. However, notice must be given to the Federal Reserve Board, within 30 days after the FHC has commenced one or more of the financial activities. The Corporation has not elected to become an FHC at this time.

Under the GLB Act, a bank subject to various requirements is permitted to engage through “financial subsidiaries” in certain financial activities permissible for affiliates of FHC’s. However, to be able to engage in such activities a bank must continue to be “well-capitalized” and “well-managed” and receive at least a “satisfactory” rating in its most recent Community Reinvestment Act examination.

•Community Reinvestment Act and Fair Lending

The Community Reinvestment Act requires banks to help serve the credit needs of their communities, including providing credit to low and moderate income individuals and areas. Should the Bank fail to serve adequately the communities it serves, potential penalties may include regulatory denials to expand branches, relocate, add subsidiaries and affiliates, expand into new financial activities and merge with or purchase other financial institutions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Consumer Financial Protection Bureau (the “CFPB”), the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and future prospects.

•Privacy of Consumer Financial Information

The GLB Act also contains a provision designed to protect the privacy of each consumer’s financial information in a financial institution. Pursuant to the requirements of the GLB Act, the Consumer Financial Protection Bureau has promulgated final regulations intended to better protect the privacy of a consumer’s financial information maintained by financial institutions. The regulations are designed to prevent financial institutions, such as the Bank, from disclosing a consumer’s nonpublic personal information to third parties that are not affiliated with the financial institution.

However, financial institutions may share a customer’s nonpublic personal information or information about business and corporations with their affiliated companies. The regulations also provide that financial institutions can disclose nonpublic personal information to nonaffiliated third parties for marketing purposes but the financial institution must provide a description of its privacy policies to its consumers and give such consumers an opportunity to opt-out of such disclosure and, thus, prevent disclosure by the financial institution of the consumer’s nonpublic personal information to nonaffiliated third parties.

These privacy regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. These privacy regulations have not had a material adverse impact on the Corporation's operations thus far.

•Consumer Protection Rules – Sale of Insurance Products

In addition, as mandated by the GLB Act, the regulatory agencies have published consumer protection rules which apply to the retail sales practices, solicitation, advertising or offers of insurance products, including annuities, by depository institutions such as banks and their subsidiaries.

The rules provide that before the sale of insurance or annuity products can be completed, disclosures must be made that state (i) such insurance products are not deposits or other obligations of or guaranteed by the FDIC or any other agency of the United States, the Bank or its affiliates; and (ii) in the case of an insurance product that involves an investment risk, including an annuity, that there is an investment risk involved with the product, including a possible loss of value.

The rules also provide that the Bank may not condition an extension of credit on the consumer’s purchase of an insurance product or annuity from the Bank or its affiliates or on the consumer’s agreement not to obtain or a prohibition on the consumer obtaining an insurance product or annuity from an unaffiliated entity.

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The rules also require formal acknowledgement from the consumer that such disclosures have been received. In addition, to the extent practical, the Bank must keep insurance and annuity sales activities physically separate from the areas where retail banking transactions are routinely accepted from the general public.

•Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) addresses, among other matters, increased disclosures; audit committees; certification of financial statements by the principal executive officer and the principal financial officer; evaluation by management of our disclosure controls and procedures and our internal control over financial reporting; auditor reports on our internal control over financial reporting; forfeiture of bonuses and profits made by directors and senior officers in the twelve (12) month period covered by restated financial statements; a prohibition on insider trading during BMBC's stock blackout periods; disclosure of off-balance sheet transactions; a prohibition applicable to companies, other than federally insured financial institutions, on personal loans to their directors and officers; expedited filing of reports concerning stock transactions by a company’s directors and executive officers; the formation of a public accounting oversight board; auditor independence; and increased criminal penalties for violation of certain securities laws.

•USA PATRIOT Act of 2001

The USA PATRIOT Act of 2001, which was enacted in the wake of the September 11, 2001 attacks, includes provisions designed to combat international money laundering and advance the U.S. government’s war against terrorism. The USA PATRIOT Act and the regulations which implement it contain many obligations which must be satisfied by financial institutions, including the Bank. Those regulations impose obligations on financial institutions, such as the Bank, to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the financial institution.

•Government Policies and Future Legislation

As the enactment of the GLB Act and the Sarbanes-Oxley Act confirm, from time to time various laws are passed in the United States Congress as well as the Pennsylvania legislature and by various bank regulatory authorities which would alter the powers of, and place restrictions on, different types of banks and financial organizations. It is impossible to predict whether any potential legislation or regulations will be adopted and the impact, if any, of such adoption on the business of BMBC or its subsidiaries, especially the Bank.

The U.S. 2020 presidential election may bring changes to national financial services policy and supervision. If a different political party gains control of the Executive Branch of the Federal government, such will very likely bring changes that we cannot now predict. Public statements by some presidential candidates suggest that if a new political party takes control of the Executive Branch, such may result in a change in policies and regulations that implement current federal law, including laws that implement the Dodd-Frank Act, and otherwise affect the financial services industry. Such changes may result in increased compliance costs and burden for BMBC and its subsidiaries.

•Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)

The Dodd-Frank Act was passed by Congress on July 15, 2010, and was signed into law by President Obama on July 21, 2010. It is intended to promote financial stability in the U.S., reduce the risk of bailouts and protect against abusive financial services practices by improving accountability and transparency in the financial system and ending the concept of “too big to fail” institutions by giving regulators the ability to liquidate large financial institutions. It is the broadest overhaul of the U.S. financial system since the Great Depression and the overall impact on BMBC and its subsidiaries is a general increase in costs related to compliance with the Dodd-Frank Act.

The Dodd-Frank Act has significantly changed the current bank regulatory structure and will affect into the immediate future the lending and investment activities and general operations of depository institutions and their holding companies.

As discussed earlier, the Dodd-Frank Act requires the Federal Reserve Board to establish minimum consolidated capital requirements for bank holding companies that are as stringent as those required for insured depository institutions; the components of Tier I capital are restricted to capital instruments that are considered to be Tier I capital for insured depository institutions. In addition, the proceeds of trust preferred securities are excluded from Tier I capital unless (i) such securities are

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issued by bank holding companies with assets of less than $500 million or (ii) such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.

The Dodd-Frank Act also created a new Consumer Financial Protection Bureau (the “CFPB”) with extensive powers to implement and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks, among other things, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. However, institutions of less than $10 billion in assets, such as the Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their prudential regulators.

The Dodd-Frank Act made many other changes in banking regulation. These include allowing depository institutions, for the first time, to pay interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred loans, establishing regulatory rate-setting for certain debit card interchange fees and establishing a number of reforms for mortgage originations. Effective October 1, 2011, the debit-card interchange fee was capped at $0.21 per transaction, plus an additional 5 basis point charge to cover fraud losses. These fees are much lower than the current market rates. The regulation only impacts banks with assets above $10 billion.

The Dodd-Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to promulgate rules revising its assessment system so that it is based on the average consolidated total assets less tangible equity capital of an insured institution instead of deposits. That rule took effect April 1, 2011. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008.

Although many of the provisions of the Dodd-Frank Act are currently effective, there remain some regulations yet to be implemented. It is therefore difficult to predict at this time what impact the Dodd-Frank Act and implementing regulations will have on BMBC and the Bank. The changes resulting from the Dodd-Frank Act could limit our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise materially and adversely affect us. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements could also materially and adversely affect us.

ITEM 1A. RISK FACTORS

Investment in BMBC’s Common Stock involves risk. The following list, which contains certain risks that may be unique to the Corporation and to the banking industry, is neither all-inclusive nor are the factors in any particular order.

Risks Related to Our Business

The Corporation’s performance and financial condition may be adversely affected by regional economic conditions and real estate values.

The Bank’s loan and deposit activities are largely based in eastern Pennsylvania. As a result, the Corporation’s consolidated financial performance depends largely upon economic conditions in this eastern Pennsylvania region. This region experienced deteriorating local economic conditions during 2008 through 2011, and a resumption of this deterioration in the regional real estate market could harm our financial condition and results of operations because of the geographic concentration of loans within this regional area and because a large percentage of our loans are secured by real property. If there is further decline in real estate values, the collateral for the Corporation’s loans will provide less security. As a result, the Corporation’s ability to recover on defaulted loans by selling the underlying real estate will be diminished, and the Bank will be more likely to suffer losses on defaulted loans.

Additionally, a significant portion of the Corporation’s loan portfolio is invested in commercial real estate loans. Often in a commercial real estate transaction, repayment of the loan is dependent on rental income. Economic conditions may affect the tenant’s ability to make rental payments on a timely basis, or may cause some tenants not to renew their leases, each of which may impact the debtor’s ability to make loan payments. Further, if expenses associated with commercial properties increase dramatically, the tenant’s ability to repay, and therefore the debtor’s ability to make timely loan payments, could be adversely affected.

All of these factors could increase the amount of the Corporation’s non-performing loans, increase its provision for credit losses and reduce the Corporation’s net income.

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Climate change, severe weather, natural disasters, global health risks or pandemics, acts of war or terrorism, and other external events could significantly impact our business.

Natural disasters, including severe weather events of increasing strength and frequency due to climate change, global health risks or pandemics, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us or our customers. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional expenses.

Rapidly changing interest rate environment could reduce the Corporation’s net interest margin, net interest income, fee income and net income.

Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a significant part of the Corporation’s net income. Interest rates are key drivers of the Corporation’s net interest margin and subject to many factors beyond the control of the Corporation. As interest rates change, net interest income is affected. Rapidly increasing interest rates in the future could result in interest expenses increasing faster than interest income because of divergence in financial instrument maturities and/or competitive pressures. Further, substantially higher interest rates generally reduce loan demand and may result in slower loan growth. Decreases or increases in interest rates could have a negative effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net interest income. Changes in interest rates might also impact the values of equity and debt securities under management and administration by the Wealth Management Division which may have a negative impact on fee income. See the section captioned “Net Interest Income” in the MD&A section of this Annual Report on Form 10-K for additional details regarding interest rate risk.

Economic troubles may negatively affect our leasing business.

The Corporation’s leasing business, which began operations in September 2006, consists of the nationwide leasing of various types of equipment to small- and medium-sized businesses. Economic sluggishness may result in higher credit losses than we would experience in our traditional lending business, as well as potential increases in state regulatory burdens such as state income taxes, personal property taxes and sales and use taxes.

A general economic slowdown could impact Wealth Management Division revenues.

A general economic slowdown may cause current clients to seek alternative investment opportunities with other providers, which would decrease the value of Wealth Management Division's assets under management and administration resulting in lower fee income to the Corporation.

Revenues from our capital markets business line may be adversely affected by adverse market or economic conditions.

Unfavorable financial or economic conditions have the ability to reduce the number and size of transactions in which we provide capital markets advisory and other advisory services. Specifically, a number of our clients engaging in capital markets and strategic and other types of transactions often rely on access to the equity and credit markets to finance their transactions. A lack of available equity investments or credit or an increased cost of credit can adversely affect the size, volume and timing of these transactions by our clients. Because the revenues of our capital markets business are in the form of financial advisory other fees and are directly related to the number and size of the transactions in which we participate, a decrease in the number and size of transactions would adversely affect our capital markets business.

Our ability to attract and maintain customer and investor relationships depends largely on our reputation.

Damage to our reputation could undermine the confidence of our current and potential customers and investors in our ability to provide high-quality financial services. Such damage could also impair the confidence of our counterparties and vendors and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described in this report, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, customer personal information and privacy issues, customer and other third-party fraud, record-keeping, technology-related issues including but not limited to cyber fraud, regulatory investigations and any litigation that may arise from the failure or perceived failure to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability to successfully prevent third parties from infringing on our brands and associated trademarks and our other

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intellectual property. Defense of our reputation, trademarks and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on our business, financial condition, or results of operations.

If we fail to comply with legal standards, we could incur liability to our clients or lose clients, which could negatively affect our earnings.

Managing or servicing assets with reasonable prudence in accordance with the terms of governing documents and applicable laws is important to client satisfaction, which in turn is important to the earnings and growth of our investment businesses. Failure to comply with these standards, adequately manage these risks or manage the differing interests often involved in the exercise of fiduciary responsibilities could also result in liability.

Provision for loan and lease losses and level of non-performing loans may need to be modified in connection with internal or external changes.

All borrowers carry the potential to default and our remedies to recover may not fully satisfy money previously loaned. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which represents the Corporation’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of the Corporation, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan losses reflects the Corporation’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments different than those of the Corporation. An increase in the allowance for loan losses results in a decrease in net income, and possibly risk-based capital, and may have a material adverse effect on our financial condition and results of operations.

The design of the allowance for loan loss methodology is a dynamic process that must be responsive to changes in environmental factors. Accordingly, at times the allowance methodology may be modified in order to incorporate changes in various factors including, but not limited to, levels and trends of delinquencies and charge-offs, trends in volume and types of loans, national and economic trends and industry conditions.

Increased regulatory oversight, uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the results of our operations.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offering Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Efforts in the United States to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. Uncertainty as to the nature of alternative reference rates and as to potential changes in other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings, including the rates we pay on our subordinated debentures and trust preferred securities. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently and we may incur significant costs to transition both our borrowing arrangements and the loan agreements with our customers from LIBOR, which may have an adverse effect on our results of operations. Management’s transition plan includes a number of key work streams, including developing an inventory of financial instruments and contracts impacted by LIBOR; identifying and evaluating the scope of existing financial instruments and contracts that may be affected by the transition, and the extent to which such financial instruments and contracts already contain appropriate fallback language or would require amendment; conducting appropriate outreach to clients, as needed; and, risk management, among other things, to facilitate the transition to alternative reference rates.

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Potential acquisitions may disrupt the Corporation’s business and dilute shareholder value.

We regularly evaluate opportunities to advance our strategic objectives by opening new branches or offices or acquiring and investing in banks and in other complementary businesses, such as wealth advisory or insurance agencies. As a result, we may engage in negotiations or discussions that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short and long-term liquidity. Our acquisition activities could be material to us. For example, we could issue additional shares of common stock in a purchase transaction, which could dilute current shareholders’ ownership interest. These activities could require us to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our prior or potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill would not directly impact cash flow or tangible capital.

Our acquisition activities could involve a number of additional risks, including the risks of:


•	incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in the Corporation’s attention being diverted from the operation of our existing business;


•	using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets;


•	potential exposure to unknown or contingent liabilities of banks and businesses we acquire;


•	the time and expense required to integrate the operations and personnel of the combined businesses;


•	experiencing higher operating expenses relative to operating income from the new operations;


•	creating an adverse short-term effect on our results of operations;


•	losing key employees and customers as a result of an acquisition that is poorly received;


•	risk of significant problems relating to the conversion of the financial and customer data of the entity being acquired into the Corporation’s financial and customer product systems; and,


•	potential impairment of intangible assets created in business acquisitions.

There is no assurance that we will be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions. Our inability to overcome these risks could have an adverse effect on our levels of reported net income, return on average equity and return on average assets, and our ability to achieve our business strategy and maintain our market value.

Decreased residential mortgage origination, volume and pricing decisions of competitors could affect our net income.

The Corporation originates, sells and services residential mortgage loans. Changes in interest rates and pricing decisions by our loan competitors affect demand for the Corporation’s residential mortgage loan products, the revenue realized on the sale of loans and revenues received from servicing such loans for others, ultimately reducing the Corporation’s net income. New regulations, increased regulatory reviews, and/or changes in the structure of the secondary mortgage markets which the Corporation utilizes to sell mortgage loans may be introduced and may increase costs and make it more difficult to operate a residential mortgage origination business.

Our mortgage servicing rights could become impaired, which may require us to take non-cash charges.

Because we retain the servicing rights on many loans we sell in the secondary market, we are required to record a mortgage servicing right asset, which we test quarterly for impairment. The value of mortgage servicing rights is heavily dependent on market interest rates and tends to increase with rising interest rates and decrease with falling interest rates. If we are required to record an impairment charge, it would adversely affect our financial condition and results of operations.

Accounting standards periodically change and the application of our accounting policies and methods may require management to make estimates about matters that are uncertain.

The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting Standards Board and the SEC, periodically revise or issue new financial accounting and reporting standards that govern the preparation of

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our consolidated financial statements. The effect of such revised or new standards on our financial statements can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.

In addition, management must exercise judgment in appropriately applying many of our accounting policies and methods so they comply with generally accepted accounting principles. In some cases, management may have to select a particular accounting policy or method from two or more alternatives. In some cases, the accounting policy or method chosen might be reasonable under the circumstances and yet might result in our reporting materially different amounts than would have been reported if we had selected a different policy or method. Accounting policies are critical to fairly presenting our financial condition and results of operations and may require management to make difficult, subjective or complex judgments about matters that are uncertain.

FASB ASU 2016-13 will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.

Issued in June 2016, ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”), eliminates the Provision for Loan and Lease Losses (the “Provision”) and Allowance for Loan and Lease Losses (the “Allowance”) line items and establishes the Provision for Credit Losses ("PCL") and Allowance for Credit Losses ("ACL") line items.

Under the legacy “Incurred Loss” notion, management presents an Allowance intended to represent “probable and estimable” incurred but not yet realized credit losses on assets in scope. When management deems collection of contractual cashflows for an instrument unlikely, a specific reserve is calculated under ASC 310-10. Management further calculates a general reserve for performing assets under ASC 450-20, using historical loss experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not allow for projections beyond the likely ‘emergence period’ of losses, or for forward-looking economic conditions; for example, loss contingencies in 2022 are not currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.

In contrast, the future accounting standard requires projection of credit loss over the contract lifetime of the asset, adjusted for prepayment tendencies. Further, management’s specific expectations for the future economic environment must be incorporated in the projection, with loss expectations to revert to the long-run historical mean after such time as management can make or obtain a reasonable and supportable forecast. This valuation reserve will be established in the ACL and maintained through expense (provision) in the PCL. In the event that additional allocation is required to fund the ACL at adoption, investors will see a cumulative-effect (one-time) adjustment to retained earnings upon adoption of the new standard.

The new CECL standard became effective for the Corporation beginning January 1, 2020. Management is validating the Corporation's CECL model and methodologies, however we expect an initial increase to the ACL, including reserves for unfunded commitments, not to exceed 130% of the December 31, 2019 Allowance, or an incremental increase to the December 31, 2019 Allowance of approximately $6.8 million. When finalized, this one-time increase as a result of the adoption of CECL will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2020. This estimate is subject to change based on continuing refinement and validation of the model and methodologies. For more information regarding the CECL standard, see Note 2, “Recent Accounting Pronouncements” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Declines in asset values may result in impairment charges and may adversely affect the value of the Corporation’s results of operations, financial condition and cash flows.

A majority of the Corporation’s investment portfolio is comprised of securities which are collateralized by residential mortgages. These residential mortgage-backed securities include securities of U.S. government agencies, U.S. government-sponsored entities, and private-label collateralized mortgage obligations. The Corporation’s securities portfolio also includes obligations of U.S. government-sponsored entities, obligations of states and political subdivisions thereof, and equity securities. The fair value of investments may be affected by factors other than the underlying performance of the issuer or composition of the obligations themselves, such as rating downgrades, adverse changes in the business climate and a lack of liquidity for resale of certain investment securities. Quarterly, the Corporation evaluates investments and other assets for impairment indicators in accordance with U.S. GAAP. Given the significant judgments involved, if we are incorrect in our impairment assessment, this error could have a material adverse effect on our results of operation, financial condition, and cash flows. If the Corporation incurs impairment charges that result in its falling below the “well capitalized” regulatory requirement, it may need to raise additional capital. Further, a decline in the fair value of the securities in our investment portfolio could have a material adverse effect on our results of operation, financial condition, and cash flows.

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Legal proceedings to which we are subject or may become subject may have a material adverse impact on our financial position and results of operations.

Like many banks and other financial services organizations in our industry, we are from time to time involved in various legal proceedings and subject to claims and other legal actions related to our business activities brought by customers, employees and others. All such legal proceedings are inherently unpredictable and, regardless of the merits of the claims, litigation is often expensive, time-consuming, disruptive to our operations and resources, and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts and judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial condition and how we operate our business. Similarly, if we settle such legal proceedings, it may affect our financial condition and how we operate our business. Future court decisions, alternative dispute resolution awards, matters arising due to business expansion, or legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial non-economic remedies or punitive damages may be sought. Although we maintain liability insurance coverage; there can be no assurance that such coverage will cover any particular verdict, judgment, or settlement that may be entered against us, that such coverage will prove to be adequate, or that such coverage will continue to remain available on acceptable terms, if at all. Legal proceedings to which we are subject or may become subject may have a material adverse impact on our financial position and results of operations.

A return to recessionary conditions or a large and unexpected rise in interest rates could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Falling home prices and sharply reduced sales volumes, along with the collapse of the United States’ subprime mortgage industry in 2008 that followed a national home price peak in mid-2006, significantly contributed to a recession that officially lasted until June 2009, although the effects continued thereafter. Dramatic declines in real estate values and high levels of foreclosures resulted in significant asset write-downs by financial institutions, which caused many financial institutions to seek additional capital, to merge with other institutions and, in some cases, to fail. A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and a return to higher unemployment levels may result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. A large or unexpected rise in interest rates could materially impact consumer and business ability to repay, thus increasing our level of nonperforming loans and reducing demand for loans. These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.

Increases in FDIC insurance premiums may adversely affect the Corporation’s earnings.

In February 2011, as required under the Dodd-Frank Act, the FDIC issued a ruling that changed the assessment base against which FDIC assessments for deposit insurance are made. Instead of FDIC insurance assessments being based upon an insured bank’s deposits, FDIC insurance assessments are generally based on an insured bank’s total average assets minus average tangible equity. A change in the risk categories applicable to BMBC’s bank subsidiaries, further adjustments to base assessment rates, and any special assessments could have a material adverse effect on the Corporation.

In addition, should bank failures begin to increase in number or the FDIC insurance fund become depleted in others ways, FDIC premiums could increase or additional special assessments could be imposed. These increased premiums would have an adverse effect on our net income and results of operations.

The stability of other financial institutions could have detrimental effects on our routine funding transactions.

Routine funding transactions may be adversely affected by the actions and soundness of other financial institutions. Financial service institutions are interrelated as a result of trading, clearing, lending, borrowing or other relationships. Transactions are executed on a daily basis with different industries and counterparties, and routinely executed with counterparties in the financial services industry. As a result, a rumor, default or failures within the financial services industry could lead to market-wide liquidity problems which in turn could materially impact the financial condition of the Corporation.

The Corporation may need to raise additional capital in the future and such capital may not be available when needed or at all.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations and may need to raise additional capital in the future, whether in the form of debt or equity, to provide us with

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sufficient capital resources to meet our regulatory and business needs. We cannot assure you that such capital will be available to us on acceptable terms or at all. Our ability to raise additional capital will depend on, among other things, conditions in the capital markets at the time, which are outside of our control, and our financial condition. If the Corporation is unable to generate sufficient additional capital though its earnings, or other sources, including sales of assets, it would be necessary to slow earning asset growth and or pass up possible acquisition opportunities, which may result in a reduction of future net income growth. Further, an inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations.

If sufficient wholesale funding to support earning-asset growth is unavailable, the Corporation’s net income may decrease.

Management recognizes the need to grow both non-wholesale and wholesale funding sources to support earning asset growth and to provide appropriate liquidity. The Corporation’s asset growth over the past few years has been supplemented by various forms of wholesale funding which is defined as wholesale deposits (primarily wholesale certificates of deposit) and borrowed funds (Federal Home Loan Bank of Pittsburgh (“FHLB”), Federal advances and Federal fund line borrowings). Wholesale funding at December 31, 2019 represented approximately 18.0% of total funding compared to 17.1% at December 31, 2018 and 15.9% at December 31, 2017. Wholesale funding is subject to certain practical limits such as the FHLB’s Maximum Borrowing Capacity and the Corporation’s liquidity targets. Additionally, regulators might consider wholesale funding beyond certain points to be imprudent and might suggest that future asset growth be reduced or halted.

In the absence of wholesale funding sources, the Corporation may need to reduce earning asset growth through the reduction of current production, sale of assets, and/or the participating out of future and current loans or leases. This in turn might reduce future net income of the Corporation.

The amount loaned to us is generally dependent on the value of the collateral pledged and the Corporation’s financial condition. These lenders could reduce the percentages loaned against various collateral categories, eliminate certain types of collateral and otherwise modify or even terminate their loan programs, particularly to the extent they are required to do so because of capital adequacy or other balance sheet concerns, or if disruptions in the capital markets occur. Any change or termination of our borrowings from the FHLB, the Federal Reserve or correspondent banks may have an adverse effect on our liquidity and profitability.

The capital and credit markets are volatile and could cause the price of our stock to fluctuate.

The capital and credit markets periodically experience volatility. In some cases, the markets may produce downward pressure on stock prices and credit availability for certain issuers seemingly without regard to those issuers’ underlying financial strength. Market volatility may result in a material adverse effect on our business, financial condition and results of operations and/or our ability to access capital. Several factors could cause the market price for our common stock to fluctuate substantially in the future, including without limitation:


•	announcements of developments related to our business, any of our competitors or the financial services industry in general;


•	fluctuations in our results of operations;


•	sales of substantial amounts of our securities into the marketplace;


•	general conditions in our markets or the worldwide economy;


•	a shortfall in revenues or earnings compared to securities analysts’ expectations;


•	changes in analysts’ recommendations or projections;


•	our announcement of new acquisitions or other projects; and


•	compliance with regulatory changes.

Any failure of BMBC, the Bank or their subsidiaries to comply with federal and state regulatory requirements could adversely affect our business.

BMBC and the Bank are supervised by the Federal Reserve Board, the Pennsylvania Department of Banking and Securities and the State of Delaware. Accordingly, BMBC, the Bank and our subsidiaries are subject to extensive federal and state legislation, regulation and administrative decisions imposing requirements and restrictions on almost all aspects of our

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business operations and which are primarily designed to protect consumers, depositors and the government's deposit insurance funds, and is not designed to protect shareholders. These include, but are not limited to, the Bank Secrecy Act and anti-money laundering regulations, the USA PATRIOT Act, the GLB Act, the Equal Credit Opportunity Act, regulations and sanctions programs administered by the Office of Foreign Assets Control, real estate-secured consumer lending regulations (such as Truth-in-Lending), Real Estate Settlement Procedures Act regulations, trust laws and regulations, and licensing and registration requirements for mortgage originators and insurance brokers. Federal and state banking regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and bank holding companies in the performance of their supervisory and enforcement duties.

Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change. Regulations affecting banks and other financial institutions, such as the Dodd-Frank Act, are continuously reviewed and change frequently. For instance, the Dodd-Frank Act has changed the bank regulatory framework, created an independent consumer protection bureau that has assumed the consumer protection responsibilities of the various federal banking agencies, and established more stringent capital standards for banks and bank holding companies. The ultimate effect of such changes cannot be predicted. While the Corporation has policies and procedures designed to ensure compliance with the applicable laws, rule and regulations, there is risk that BMBC and the Bank may be determined not to have complied with applicable requirements, and any failure, even if such failure was unintentional or inadvertent, could result in adverse action to be taken by regulators, including through formal or informal supervisory enforcement actions, and could result in the assessment of fines and penalties. In some circumstances, additional negative consequences also may result from regulatory action, including restrictions on the Corporation’s business activities, acquisitions and other growth initiatives. The occurrence of one or more of these events may have a material adverse effect on our business and reputation.

There is also no assurance that laws, rules and regulations will not be proposed or adopted in the future, which could (i) make compliance much more difficult or expensive, (ii) restrict our ability to originate, modify, broker or sell loans or accept certain deposits, (iii) restrict our ability to foreclose on property securing loans, (iv) further limit or restrict the amount of commissions, interest or other charges earned on loans originated or sold by us, or (v) otherwise materially and adversely affect our business or prospects for business. These risks could affect our deposit funding and the performance and value of our loan and investment securities portfolios, which could negatively affect our financial performance and financial condition.

Previously enacted and potential future legislation, including legislation to reform the U.S. financial regulatory system, could adversely affect our business.

The change in President and political party controlling the Executive Branch of the Federal Government resulting from the 2016 U.S. presidential election has brought changes to laws and regulations of the U.S. financial services industry, including the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), and may continue to bring changes that we cannot now predict. The EGRRCPA, which amended the Dodd-Frank Act, directed certain federal banking regulatory agencies, including the Federal Reserve, to take action to reduce the regulatory burden on certain banks and financial institutions. Federal banking regulatory agencies are currently working on taking the actions congressionally mandated by the EGRRCPA; however, uncertainty about the timing and scope of any such changes as well as the cost of complying with a new regulatory regime, may negatively impact our business, at least in the short-term, even if the long-term impact of any such changes are positive for our business.

Market conditions have resulted in the creation of various programs by the United States Congress, the Treasury, the Federal Reserve and the FDIC that were designed to enhance market liquidity and bank capital. As these programs expire, are withdrawn or reduced, the impact on the financial markets, banks in general and their customers is unknown. This could have the effect of, among other things, reducing liquidity, raising interest rates, reducing fee revenue, limiting the ability to raise capital, all of which could have an adverse impact on the financial condition of the Bank and BMBC.

Additionally, the federal government has passed a variety of other reforms related to banking and the financial industry including, without limitation, the Dodd-Frank Act. The Dodd-Frank Act imposed significant regulatory and compliance changes. Effects of the Dodd-Frank Act on our business include:


•	changes to regulatory capital requirements;


•	exclusion of hybrid securities, including trust preferred securities, issued on or after May 19, 2010 from Tier I capital;

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•	creation of new government regulatory agencies (such as the Financial Stability Oversight Council, which will oversee systemic risk, and the Consumer Financial Protection Bureau, which will develop and enforce rules for bank and non-bank providers of consumer financial products);


•	potential limitations on federal preemption;


•	changes to deposit insurance assessments;


•	regulation of debit interchange fees we earn;


•	changes in retail banking regulations, including potential limitations on certain fees we may charge; and


•	changes in regulation of consumer mortgage loan origination and risk retention.

In addition, the Dodd-Frank Act restricts the ability of banks to engage in certain proprietary trading or to sponsor or invest in private equity or hedge funds, commonly referred to as the Volcker Rule. The EGRRCPA provided an exemption from the Volcker Rule’s restrictions for banks with less than $10 billion in assets. The Dodd-Frank Act also contains provisions designed to limit the ability of insured depository institutions, their holding companies and their affiliates to conduct certain swaps and derivatives activities and to take certain principal positions in financial instruments.

Some provisions of the Dodd-Frank Act became effective immediately upon its enactment. Many provisions, however, require regulations to be promulgated by various federal agencies in order to be implemented, some of which have been proposed by the applicable federal agencies. The provisions of the Dodd-Frank Act may have unintended effects, which will not be clear until implementation. The changes resulting from the Dodd-Frank Act could limit our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise materially and adversely affect us. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements could also materially and adversely affect us.

The CFPB may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which may directly impact the business operations of depository institutions offering consumer financial products or services including the Bank.

The CFPB has broad rulemaking authority to administer and carry out the purposes and objectives of the “Federal consumer financial laws, and to prevent evasions thereof,” with respect to all financial institutions that offer financial products and services to consumers. The CFPB is also authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service (“UDAAP authority”). The potential reach of the CFPB’s broad rulemaking powers and UDAAP authority on the operations of financial institutions offering consumer financial products or services, including the Bank, is currently unknown.

Governmental discretionary policies may impact the operations and earnings of the Corporation.

The operations of the Corporation are affected not only by general economic conditions, but also by the policies of various regulatory authorities. In particular, the Federal Reserve Board regulates monetary policy and interest rates in order to influence general economic conditions. These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for deposits. Federal Reserve Board monetary policies have had a significant effect on the operating results of all financial institutions in the past and may continue to do so in the future.

Potential losses incurred in connection with possible repurchases and indemnification payments related to mortgages that we have sold into the secondary market may require us to increase our financial statement reserves in the future.

We engage in the origination and sale of residential mortgages into the secondary market. In connection with such sales, we make certain representations and warranties, which, if breached, may require us to repurchase such loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. These representations and warranties vary based on the nature of the transaction and the purchaser’s or insurer’s requirements, but generally pertain to the ownership of the mortgage loan, the real property securing the loan and compliance with applicable laws and applicable lender and government-sponsored entity underwriting guidelines in connection with the origination of the loan. While we believe our mortgage lending practices and standards to be adequate, we have settled a small number of claims we consider to be immaterial; we may receive requests in the future, however, which could be material in volume. If that were to happen, we

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could incur losses in connection with loan repurchases and indemnification claims, and any such losses might exceed our financial statement reserves, requiring us to increase such reserves. In that event, any losses we might have to recognize and any increases we might have to make to our reserves could have a material adverse effect on our business, financial position, liquidity, results of operations or cash flows.

Our ability to realize our deferred tax asset may be reduced as a result of the tax reform legislation enacted in late 2017, which could adversely impact results of operation and negatively affect our financial condition.

Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences. The deferred tax asset may be reduced in the future if estimates of future income or our tax planning strategies do not support the amount of the deferred tax asset. If it is determined that a valuation allowance of its deferred tax asset is necessary, the Corporation may incur a charge to earnings. The value of our deferred tax asset is directly related to the income tax rates in effect at the time of use. In late 2017, the U.S. Congress passed significant legislation reforming the Internal Revenue Code known as the Tax Cuts and Jobs Act of 2017 ("Tax Reform" or the “Tax Act”). On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Reform”), was signed into law. The Tax Act, among other changes, reduced the U.S. federal corporate income tax rate from 35% to 21%. As a result of the Tax Act, the Corporation recorded a $15.2 million one-time income tax charge related to the re-measurement of the Corporation’s net deferred tax asset, triggered by the Tax Act, during the year ended December 31, 2017, and a $2.6 million tax benefit recorded during the year ended December 31, 2018 for certain discrete items included on our 2017 tax return that was filed during the fourth quarter of 2018.

Environmental risk associated with our lending activities could affect our results of operations and financial condition.

Although we perform limited environmental due diligence in conjunction with originating loans secured by properties, we believe have environmental risk, we could be subject to environmental liabilities on real estate properties we foreclose upon and take title to in the normal course of our business. In connection with environmental contamination, we may be held liable to governmental entities or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties, or we may be required to investigate or clean-up hazardous or toxic substances at a property. The investigation or remediation costs associated with such activities could be substantial. Furthermore, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination even if we were the former owner of a contaminated site. The incurrence of a significant environmental liability could adversely affect our business, financial condition and results of operations. These risks are present even though we perform environmental due diligence on our collateral properties. Such diligence may not reflect all current risks or threats, and unforeseen or unpredictable future events may cause a change in the environmental risk profile of a property after a loan has been made.

Technological systems failures, interruptions and security breaches could negatively impact our operations and reputation.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits, and our loans. While we have established policies and procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, any compromise of our security systems could deter customers from using our web site and our online banking service, which involve the transmission of confidential information. Although we rely on commonly used security and processing systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

In addition, we outsource certain of our data processing to third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for customer transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any systems failure, interruption, or breach of security could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to civil litigation and possible financial liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

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We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our customers and other institutions, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.

Our computer systems and network infrastructure and those of third parties, on which we are highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities, or identity theft. Our business relies on the secure processing, transmission, storage, and retrieval of confidential, proprietary, and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products, and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks.

We, our customers, regulators, and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of confidential, proprietary, and other information of ours, our employees, our customers, or of third parties, damage our systems or otherwise materially disrupt our or our customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies, and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches. Cyber threats are rapidly evolving, and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.

Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Additionally, the existence of cyber attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.

Although to date we have not experienced any material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches, whether directed at us or third parties, there can be no assurance that we will not suffer such losses or other consequences in the future. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.

We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; financial intermediaries such as clearing agents, exchanges and clearing houses; vendors; regulators; and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses.

Cyber attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. A successful penetration or circumvention of system security could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our

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confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations and financial condition.

Failure to meet customer expectations for technology-driven products and services could reduce demand for bank and wealth services.

Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological advances and to invest in new technology as it becomes available. Many of our competitors have greater resources to invest in technology than we do and may be better equipped to market new technology-driven products and services. The ability to keep pace with technological change is important, and the failure to do so on our part could significantly reduce the number of new wealth and bank customers resulting in a material adverse impact on our business and therefore on our financial condition and results of operations.

The Corporation is subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.

Employee errors and misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.

We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors and customer or employee fraud. Management diligently reviews and updates its internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Should our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, results of operations and financial condition.

Attractive acquisition opportunities may not be available to us in the future which could limit the growth of our business.

We may not be able to sustain a positive rate of growth or expand our business. We expect that other banking and financial service companies, many of which have significantly greater resources than us, will compete with us in acquiring other financial institutions if we pursue such acquisitions. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals for a transaction, we will not be able to consummate such transaction which we believe to be in our best interests. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Other factors, such as economic conditions and legislative considerations, may also impede or prohibit our ability to expand our market presence. If we are not able to successfully grow our business, our financial condition and results of operations could be adversely affected.

The financial services industry is very competitive, especially in the Corporation’s market area, and such competition could affect our operating results.

The Corporation faces competition in attracting and retaining deposits, making loans, and providing other financial services such as trust and investment management services throughout the Corporation’s market area. The Corporation’s competitors include other community banks, larger banking institutions, trust companies and a wide range of other financial institutions such as credit unions, registered investment advisors, financial planning firms, leasing companies, government-sponsored enterprises, on-line banking enterprises, mutual fund companies, insurance companies and other non-bank businesses. Many of these competitors have substantially greater resources than the Corporation. This is especially evident in regard to advertising and public relations spending. For a more complete discussion of our competitive environment, see “Description of Business and Competition” in Item 1 above. If the Corporation is unable to compete effectively, the Corporation may lose market share and income from deposits, loans, and other products may be reduced.

Additionally, increased competition among financial services companies due to consolidation of certain competing financial institutions and the conversion of certain investment banks to bank holding companies may adversely affect our ability to market our products and services.

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Downgrades in U.S. government and federal agency securities could adversely affect the Corporation.

In addition to causing economic and financial market disruptions, any downgrades in U.S. government and federal agency securities, or failures to raise the U.S. debt limit if necessary in the future, could, among other things, have a materially adverse effect on the market value of the U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms, as well as have other material adverse effects on the operation of our business and our financial results and condition. In particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed income markets, adversely affecting the cost and availability of funding, which could negatively affect profitability. Also, the adverse consequences of a downgrade could extend to the borrowers of the loans the bank makes and, as a result, could adversely affect borrowers’ ability to repay their loans.

The Corporation is dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the Corporation’s operations and prospects.

The Corporation currently depends on the services of a number of key management personnel. The loss of key personnel could materially and adversely affect the results of operations and financial condition. The Corporation’s success also depends in part on the ability to attract and retain additional qualified management personnel. Competition for such personnel is strong and the Corporation may not be successful in attracting or retaining the personnel it requires.

Risks Related to Ownership of Our Common Stock

The price of our common stock, like many of our peers, has fluctuated significantly over the recent past and may fluctuate significantly in the future, which may make it difficult for you to resell your shares of common stock at times or at prices you find attractive.

Stock price volatility may make it difficult for holders of our common stock to resell their common stock when desired and at desirable prices. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:


•	Inaccurate management decisions regarding the fair value of assets and liabilities acquired which could materially affect our financial condition;


•	Natural disasters, fires, and severe weather;


•	Failure of internal controls;


•	Rumors or erroneous information;


•	Reliance on other companies to provide key components of our business processes;


•	Meeting capital adequacy standards and the need to raise additional capital in the future if needed, including through future sales of our common stock;


•	Actual or anticipated variations in quarterly or annual results of operations;


•	Recommendations by securities analysts;


•	Failure of securities analysts to cover, or continue to cover, us;


•	Operating and stock price performance of other companies that investors deem comparable to us;


•	News reports relating to trends, concerns and other issues in the financial services industry, including the failures of other financial institutions in the current economic downturn;


•	Perceptions in the marketplace regarding us and/or our competitors;


•	Departure of our management team or other key personnel;


•	New technology used, or services offered, by competitors;


•	Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;


•	Failure to integrate acquisitions or realize anticipated benefits from acquisitions;

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•	Existing or increased regulatory and compliance requirements, changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations;


•	Governmental investigations and actions;


•	Changes in government regulations or restructuring of government sponsored enterprises such as Fannie Mae and Freddie Mac;


•	New litigation or changes in existing litigation; and


•	Geopolitical conditions such as acts or threats of terrorism or military conflicts.

General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results as evidenced by the current volatility and disruption of capital and credit markets.

We may reduce or discontinue the payment of dividends on common stock.

Our shareholders are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. Although we currently pay quarterly dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. Our ability to pay dividends to our shareholders is subject to the restrictions set forth in Pennsylvania law, by the Federal Reserve, and by certain covenants contained in our subordinated debentures, and depends on, among other things, our results of operations, financial condition, debt service requirements, other cash needs and any other factors our Board of Directors deems relevant. Notification to the Federal Reserve is also required prior to our declaring and paying a cash dividend to our shareholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the Federal Reserve objects or until such time as we receive approval from the Federal Reserve or we no longer need to provide notice under applicable regulations. In addition, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends to our shareholders. We cannot provide assurance that we will continue paying dividends on our common stock at current levels or at all. A reduction or discontinuance of dividends on our common stock could have a material adverse effect on our business, including the market price of our common stock.

Any decisions to suspend or discontinue our stock repurchase plan could cause the market price of our common stock to decline.

Although BMBC has previously repurchased its common stock pursuant to stock repurchase programs, our stock repurchase plan may be suspended or discontinued at any time. A suspension or discontinuation of our stock repurchase plan could cause the market price of our common stock to decline. Additionally, the existence of a stock repurchase program could cause the market price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the liquidity of our stock. As a result, any repurchase program may not ultimately result in enhanced value to our shareholders and may not prove to be the best use of our cash resources.

BMBC’s common stock is subordinate to all of our existing and future indebtedness; and we are not limited on the amount of indebtedness we and our subsidiaries may incur in the future.

Our common stock ranks junior to all indebtedness, including our outstanding subordinated notes, junior subordinated debentures and other non-equity claims on BMBC with respect to assets available to satisfy claims on BMBC, including in a liquidation of BMBC. BMBC’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In addition, we are not limited by our common stock in the amount of debt or other obligations we or our subsidiaries may incur in the future. Accordingly, we and our subsidiaries may incur substantial amounts of additional debt and other obligations that will rank senior to our common stock or to which our common stock will be structurally subordinated.

There may be future sales of additional common stock or other dilution of our equity, which may adversely affect the market price of our common stock.

We are not restricted from issuing additional common stock or other securities. Further, our shareholders may in the future approve the authorization of additional classes or series of stock which may have distribution or other rights senior to the rights of our common stock, or may be convertible into or exchangeable for, or may represent the right to receive, common

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stock or substantially similar securities. The future issuance of shares of our common stock or any other such future equity classes or series could have a dilutive effect on the holders of our common stock. Additionally, the market value of our common stock could decline as a result of sales by us of a large number of shares of common stock, or any future class or series of stock in the market, or the perception that such sales could occur.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Corporation’s headquarters are located at 801 Lancaster Ave, Bryn Mawr, Pennsylvania. As of December 31, 2019, the Corporation operates banking locations, including retirement home community locations, wealth management offices, insurance and risk management locations, and administrative offices in the following counties: Montgomery (14 leased, 7 owned), Chester (6 leased, 3 owned), Delaware (7 leased, 5 owned), Philadelphia (3 leased, 3 owned), and Dauphin (1 leased) Counties in Pennsylvania; New Castle County in Delaware (2 leased); and Mercer (2 leased) and Camden (1 leased) Counties in New Jersey. Management believes the current facilities are suitable for their present and intended purposes. For additional detail regarding our properties and equipment, See Note 6, “Premises and Equipment,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Business locations and hours are available on the Corporation’s website at www.bmt.com.

ITEM 3. LEGAL PROCEEDINGS

The information required by this Item is set forth in the “Legal Matters” discussion in Note 25, “Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K, which is included in Item 8 of this Report, and which is incorporated herein by reference in response to this Item.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock of BMBC is traded on the NASDAQ Stock Market under the symbol BMTC. As of February 20, 2020, there were 815 holders of record of BMBC’s common stock. During 2019, the Corporation declared and paid quarterly cash dividends on shares of its common stock. The Corporation currently expects that it will continue to pay comparable quarterly cash dividends for the foreseeable future, subject to the limitations described in “Federal Reserve Board and Pennsylvania Department of Banking and Securities Regulation” at page 8.


•	Comparison of Cumulative Total Return Chart

The following chart compares the yearly percentage change in the cumulative shareholder return on the Corporation’s common stock during the five years ended December 31, 2019, with (1) the Total Return of the NASDAQ Community Bank Index; (2) the Total Return of the NASDAQ Market Index; (3) the Total Return of the SNL Bank and Thrift Index; and (4) the Total Return of the SNL Mid-Atlantic Bank Index. This comparison assumes $100.00 was invested on December 31, 2014, in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends.

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Five Year Cumulative Return Summary
	As of December 31,
	2014		2015		2016		2017		2018		2019
Bryn Mawr Bank Corporation	$	100.00	$	94.23	$	142.30	$	152.28	$	121.07	$	149.13
NASDAQ Community Bank Index	$	100.00	$	109.55	$	152.01	$	155.92	$	132.65	$	163.60
NASDAQ Market Index	$	100.00	$	106.96	$	116.45	$	150.96	$	146.67	$	200.49
SNL Bank and Thrift	$	100.00	$	102.02	$	128.80	$	151.45	$	125.81	$	170.04
SNL Mid-Atlantic Bank	$	100.00	$	103.75	$	131.87	$	161.62	$	138.10	$	196.39


•	Equity Compensation Plan Information

The information set forth under the caption “Equity Plan Compensation Information” in the 2020 Proxy Statement is incorporated by reference herein. Additional information regarding the Corporation’s equity compensation plans can be found at Note 21, “Stock-Based Compensation,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.


•	Issuer Purchases of Equity Securities

The following tables present the repurchasing activity of the Corporation during the fourth quarter of 2019:

Shares Repurchased in the 4th Quarter of 2019



Period	Total Number of Shares Purchased⁽¹⁾⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽³⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
October 1, 2019 – October 31, 2019	—	$	—	—	917,233
November 1, 2019 – November 30, 2019	—	—		—	917,233
December 1, 2019 – December 31, 2019	2,203	38.85		—	917,233
Total	2,203	$	38.85	—


(1)	On December 31, 2019, 894 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.


(2)	Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of BMBC or Bank as follows: 656 shares on December 16, 2019 and 653 shares on December 27, 2019.

(3)

On April 18, 2019, BMBC announced a new stock repurchase program (the “2019 Program”) pursuant to which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. All share repurchases during the period presented under the 2019 Program were accomplished in open market transactions. As of December 31, 2019, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 917,233, at an aggregate purchase price not to exceed $42.0 million.

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ITEM 6. SELECTED FINANCIAL DATA



Earnings	As of or for the Year Ended December 31,
(dollars in thousands)	2019			2018			2017			2016			2015
Interest income	$	193,389		$	181,055		$	129,559		$	116,991		$	108,542
Interest expense	45,748			31,584			14,432			10,755			8,415
Net interest income	147,641			149,471			115,127			106,236			100,127
Provision for loan and lease losses	8,507			7,193			2,618			4,326			4,396
Net interest income after provision for loan and lease losses	139,134			142,278			112,509			101,910			95,731
Noninterest income	82,184			75,982			59,132			53,968			55,785
Noninterest expense	146,515			140,303			114,395			101,674			125,590
Income before income taxes	74,803			77,957			57,246			54,204			25,926
Income taxes	15,607			14,165			34,230			18,168			9,172
Net income	$	59,196		$	63,792		$	23,016		$	36,036		$	16,754
Net loss income attributable to noncontrolling interest	(10		)	—			—			—			—
Net income attributable to Bryn Mawr Bank Corporation	$	59,206		$	63,792		$	23,016		$	36,036		$	16,754
Per Share Data
Weighted-average shares outstanding	20,142,306			20,234,792			17,150,125			16,859,623			17,488,325
Dilutive potential common stock	91,065			155,375			248,798			168,499			267,996
Adjusted weighted-average shares	20,233,371			20,390,167			17,398,923			17,028,122			17,756,321
Earnings per common share:
Basic	$	2.94		$	3.15		$	1.34		$	2.14		$	0.96
Diluted	2.93			3.13			1.32			2.12			0.94
Dividends paid or accrued	1.02			0.94			0.86			0.82			0.78
Dividends paid or accrued per share to net income per basic common share	34.69		%	29.8		%	64.2		%	38.3		%	81.3		%
Shares outstanding at year end	20,126,296			20,163,816			20,161,395			16,939,715			17,071,523
Book value per share	$	30.42		$	28.01		$	26.19		$	22.50		$	21.42
Tangible book value per share	20.36			17.75			16.02			15.11			13.89
Profitability Ratios
Tax-equivalent net interest margin	3.55		%	3.80		%	3.69		%	3.76		%	3.75		%
Return on average assets	1.26			1.47			0.67			1.16			0.57
Return on average equity	10.05			11.78			5.76			9.75			4.49
Noninterest expense to net interest income and noninterest income	63.8			62.2			65.6			63.5			80.6
Noninterest income to net interest income and noninterest income	35.8			33.7			33.9			33.7			35.8
Average equity to average total assets	12.57			12.44			11.69			11.90			12.68
Financial Condition
Total assets	$	5,263,259		$	4,652,485		$	4,449,720		$	3,421,530		$	3,030,997
Total liabilities	4,651,032			4,087,781			3,921,601			3,040,403			2,665,286
Total shareholders’ equity	612,227			564,704			528,119			381,127			365,711
Interest-earning assets	4,763,072			4,216,888			4,039,763			3,153,015			2,755,506
Portfolio loans and leases	3,689,313			3,427,154			3,285,858			2,535,425			2,268,988
Investment securities	1,027,182			753,628			701,744			573,763			352,916
Goodwill	184,012			184,012			179,889			104,765			104,765
Intangible assets	19,131			23,455			25,966			20,405			23,903
Deposits	3,842,245			3,599,087			3,373,798			2,579,675			2,252,725
Borrowings	665,946			427,847			496,837			423,425			378,509
Wealth assets under management, administration, supervision and brokerage	16,548,060			13,429,544			12,968,738			11,328,457			8,364,805
Capital Ratios
Tier I leverage ratio (Tier I capital to total quarterly average assets)	9.33		%	9.06		%	10.10		%	8.73		%	9.02		%
Tier I capital to risk weighted assets	11.42			10.92			10.42			10.51			10.72
Total regulatory capital to risk weighted assets	14.69			14.30			13.92			12.35			12.61
Asset quality
Allowance as a percentage of portfolio loans and leases	0.61			0.57			0.53			0.69			0.70
Non-performing loans and leases as a % of portfolio loans and leases	0.29			0.37			0.26			0.33			0.45

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Information related to business combinations and accounting changes may be found under the caption “Nature of Business” at Note 1, “Summary of Significant Accounting Policies,” and Note 2, “Recent Accounting Pronouncements,” respectively, in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS (“MD&A”)

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

Brief History of the Corporation

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. BMBC and its subsidiaries are regulated by many agencies including the Securities and Exchange Commission (“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Pennsylvania Department of Banking and Securities (the “Department of Banking”). The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.

Since January 1, 2010, the Corporation completed the following ten acquisitions:


•	Domenick & Associates (“Domenick”) - May 1, 2018


•	Royal Bancshares of Pennsylvania, Inc. ("RBPI") - December 15, 2017 (the "RBPI Merger")


•	Harry R. Hirshorn & Company, Inc. ("Hirshorn") - May 24, 2017


•	Robert J. McAllister Agency, Inc. ("RJM") - April 1, 2015


•	Continental Bank Holdings, Inc. ("CBH") - January 1, 2015 (the CBH Merger)


•	Powers Craft Parker and Beard, Inc. ("PCPB") - October 1, 2014


•	First Bank of Delaware ("FBD") - November 17, 2012


•	Davidson Trust Company ("DTC") - May 15, 2012


•	The Private Wealth Management Group of the Hershey Trust Company ("PWMG") - May 11, 2011


•	First Keystone Financial, Inc. ("FKB") - July 1, 2010

For a more complete discussion regarding certain of these acquisitions, see Item 1 – Business – Business Combinations beginning at page 5 in this Form 10-K.

Results of Operations

The following is management’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. The Corporation’s consolidated financial condition and results of operations are comprised primarily of the Bank’s financial condition and results of operations. Current performance does not guarantee, and may not be indicative of, similar performance in the future. For more information on the factors that could affect performance, see “Special Cautionary Notice Regarding Forward Looking Statements” immediately following the index at the beginning of this document.

The geographic information required by Item 101(d) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, is impracticable for the Corporation to calculate; however, the Corporation does not believe that a material amount of revenue in any of the last three years was attributable to customers outside of the United States, nor does it believe that a material amount of its long-lived assets, in any of the past three years, was located outside of the United States.

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Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation conform to U.S. generally accepted accounting principles (“GAAP”). All significant intercompany balances and transactions are eliminated in consolidation and certain reclassifications are made when necessary in order to conform the previous years' consolidated financial statements to the current year's presentation. In preparing the Consolidated Financial Statements, management 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. Therefore, actual results could differ from these estimates.

The Allowance for Loan and Lease Losses (the “Allowance”)

The Allowance involves a higher degree of judgment and complexity than other significant accounting policies. The Allowance is estimated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses present in the loan portfolio as of the reporting date. Management’s determination of the adequacy of the Allowance is based on frequent evaluations of the loan and lease portfolio and other relevant factors. Consideration is given to a variety of factors in establishing the estimate. Quantitative factors in the form of historical charge-off rates by portfolio segment are considered. In connection with these quantitative factors, management establishes what it deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 2019, management utilized a five-year LBP, which it believes adequately captures the trends in charge-offs. In addition, management develops an estimate of a loss emergence period (“LEP”) for each segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan. As of December 31, 2019, management utilized a two-year LEP for its commercial loan segments and a one-year LEP for its consumer loan segments based on analyses of actual charge-offs tracked back in time to the triggering event for the eventual loss. In addition, various qualitative factors are considered, including specific terms and conditions of loans and leases, underwriting standards, delinquency statistics, industry concentration, overall exposure to a single customer, adequacy of collateral, the dependence on collateral, and results of internal loan review, including a borrower’s perceived financial and management strengths, the amounts and timing of the present value of future cash flows, and the access to additional funds. It should be noted that this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, the amounts and timing of expected cash flows on impaired loans and leases, the value of collateral, estimated losses on consumer loans and residential mortgages and the relevance of historical loss experience. The process also considers economic conditions and inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provision for loan and lease losses (the “Provision”) may be required that would adversely impact earnings in future periods. See the section of this document titled Asset Quality and Analysis of Credit Risk beginning at page 46 for additional information.

On January 1, 2020, ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”) became effective for the Corporation. CECL will change the way we estimate credit losses for loans and leases, including off-balance sheet (“OBS”) credit exposures, as well as change the accounting for available for sale debt securities for reporting periods beginning after January 1, 2020. For more information regarding the CECL standard, see Note 2, “Recent Accounting Pronouncements” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Executive Overview

The following Executive Overview provides a summary-level review of the results of operation for 2019 compared to 2018 and 2018 compared to 2017 as well as a comparison of the December 31, 2019 balance sheet to the December 31, 2018 balance sheet. More detailed information regarding these comparisons can be found in the sections that follow.

2019 Compared to 2018

Income Statement

The Corporation reported net income attributable to Bryn Mawr Bank Corporation of $59.2 million, or $2.93 diluted earnings per share for the year ended December 31, 2019, decreases of $4.6 million and $0.20, respectively, as compared to net income attributable to Bryn Mawr Bank Corporation of $63.8 million, or $3.13 diluted earnings per share, for the year ended December 31, 2018. Return on average equity ("ROE") and return on average assets ("ROA") for the year ended December 31,

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2019, were 10.05% and 1.26%, respectively, as compared to 11.78% and 1.47%, respectively, for the same period in 2018. Contributing to the net income decrease was a decrease of $1.8 million in net interest income and increases of $6.2 million, $1.4 million, and $1.3 million in noninterest expense, income tax expense, and Provision, respectively, offset by a $6.2 million increase in noninterest income.

Tax-equivalent net interest income of $148.1 million for the year ended December 31, 2019 decreased $1.8 million as compared to $149.9 million for the year ended December 31, 2018. The decrease was primarily due to a $15.4 million increase in interest expense on interest-bearing deposits, partially offset by increases of $9.8 million and $2.2 million in interest income on tax-equivalent interest and fees on loans and leases and tax-equivalent interest income on available for sale investment securities, respectively, and decreases of $708 thousand and $600 thousand in interest expense on long-term FHLB advances and short-term borrowings, respectively.

The Provision of $8.5 million for the year ended December 31, 2019 increased $1.3 million as compared to $7.2 million for the year ended December 31, 2018. The primary driver for the increased Provision was the $262.2 million increase in portfolio loans during the twelve month period ended December 31, 2019, as compared to the $141.3 million increase in portfolio loans during the same period in 2018.

Noninterest income of $82.2 million for the year ended December 31, 2019 increased $6.2 million, or 8.2%, as compared to $76.0 million for the year ended December 31, 2018. The increase was primarily due to increases of $6.4 million and $2.1 million in capital markets revenue and fees for wealth management services, respectively, partially offset by decreases of $1.3 million and $941 thousand in other operating income and net gain on sale of loans, respectively. The increase in capital markets revenue was primarily due to increased volume and size of interest rate swap transactions with commercial loan customers for the year ended December 31, 2019 as compared to the year ended December 31, 2018 driven by the continued organic growth of our capital markets group. The increase in fees for wealth management services was primarily related to the $3.12 billion increase in wealth assets under management, administration, supervision and brokerage from $13.43 billion at December 31, 2018 to $16.55 billion at December 31, 2019, and was comprised of a $1.7 million increase from accounts whose fees are charged on a flat or fixed basis, primarily due to a $1.91 billion increase in fixed rate flat-fee account balances, and a $328 thousand increase in fees derived from market-value based fee accounts. The decrease in other operating income was primarily due to the $4.3 million decrease in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger, partially offset by increases of $1.5 million and $1.2 million in gain on trading investments and miscellaneous other income, respectively.

Noninterest expense of $146.5 million for the year ended December 31, 2019 increased $6.2 million, or 4.4%, as compared to $140.3 million for the year ended December 31, 2018. The increase was primarily due to a $7.7 million increase in salaries and wages. During the first quarter of 2019, the Corporation adopted a voluntary Years of Service Incentive Program (the “Incentive Program”) which offered certain benefits to eligible employees who met the Incentive Program requirements and voluntarily exited from service with the Corporation during 2019. The increase in salaries and wages was largely driven by a pre-tax, non-recurring, charge of $4.5 million related to the Incentive Program recognized during the first quarter of 2019, and to a lesser extent, additional recruiting efforts and increases in our incentive accruals. Also contributing to the increase were increases of $1.4 million, $1.3 million, $1.2 million and $992 thousand in other operating expenses, furniture, fixtures and equipment expenses, professional fees, and occupancy and bank premises expenses, respectively. Partially offsetting these increases in noninterest expense was a decrease of $7.8 million in due diligence, merger-related and merger integration expenses for the year ended December 31, 2019 as compared to the same period in 2018.

Balance Sheet

Asset quality as of December 31, 2019 remained stable, with nonperforming loans and leases comprising 0.29% of portfolio loans and leases as compared to 0.37% of portfolio loans and leases as of December 31, 2018. The Allowance of $22.6 million was 0.61% of portfolio loans and leases as of December 31, 2019, as compared to $19.4 million, or 0.57% of portfolio loans and leases at December 31, 2018.

Total portfolio loans and leases of $3.69 billion as of December 31, 2019 increased by $262.2 million from December 31, 2018, an increase of 7.6%. Increases of $256.0 million, $20.5 million, $13.7 million, and $10.3 million in commercial mortgages, leases, commercial and industrial loans, and consumer loans, respectively, were offset by decreases of $21.2 million, $12.7 million, and $4.5 million in construction loans, home equity loans and lines, and residential mortgages, respectively.

Investment securities available for sale of $1.01 billion as of December 31, 2019 increased $268.5 million, or 36.4%, from $737.4 million as of December 31, 2018. The increase was primarily due to the purchase of $500.0 million of short-term U.S. Treasury securities included on the balance sheet as of December 31, 2019, an increase of $300.0 million as compared to a

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similar purchase of $200.0 million of short-term U.S. Treasury securities included on the balance sheet as of December 31, 2018. This increase in U.S. Treasury securities coupled with a $76.1 million increase in mortgage-backed securities, respectively, were partially offset by decreases of $93.8 million, $7.4 million, and $6.0 million in U.S. government and agency securities, collateralized mortgage obligations, and state & political subdivision securities, respectively.

Total deposits of $3.84 billion as of December 31, 2019 increased $243.2 million, or 6.8%, from $3.60 billion as of December 31, 2018. Increases of $280.2 million, $243.8 million, and $122.8 million in interest-bearing demand accounts, money market accounts, and wholesale non-maturity deposits, respectively, were offset by decreases of $236.0 million, $137.6 million, $26.6 million, and $3.4 million in wholesale time deposits, retail time deposits, savings accounts, and noninterest bearing deposits, respectively.

Wealth Assets

Wealth assets under management, administration, supervision and brokerage of $16.55 billion as of December 31, 2019

increased $3.12 billion, or 23.22%, from $13.43 billion as of December 31, 2018. Wealth assets consisted of $9.57 billion of wealth assets where fees are set at fixed amounts and $6.98 billion of wealth assets where fees are predominantly determined based on the market value of the assets held in their accounts as of December 31, 2019, an increase of $1.91 billion and $1.21 billion, respectively, from December 31, 2018.

Recent Developments

Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. On May 1, 2019, the Court rendered a decision in favor of Snyder and ordered Crusader to pay Snyder the amount of $2,190,000 plus interest at the rate of 6% from December 1, 2006. Crusader continues to pursue appeal with the Superior Court of the Commonwealth of Pennsylvania, and is considering other strategic options with respect to this matter during the pendency of the appeal. We do not believe that this ruling and the monetary award, if any, ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

2018 Compared to 2017

Income Statement

The Corporation reported net income attributable to Bryn Mawr Bank Corporation of $63.8 million, or $3.13 diluted earnings per share for the year ended December 31, 2018, increases of $40.8 million and $1.81, respectively, as compared to net income attributable to Bryn Mawr Bank Corporation of $23.0 million, or $1.32 diluted earnings per share, for the year ended December 31, 2017. ROE and ROA for the year ended December 31, 2018 were 11.78% and 1.47%, respectively, as compared to 5.76% and 0.67%, respectively, for the same period in 2017. Contributing to the net income increase were increases of $34.4 million and $16.9 million in net interest income and noninterest income, respectively, and a decrease of $20.1 million in income tax expense, offset by increases of $25.9 million and $4.6 million in noninterest expense and Provision, respectively.

Tax-equivalent net interest income of $149.9 million for the year ended December 31, 2018 increased $34.0 million as compared to $115.9 million for the year ended December 31, 2017. Average loans and leases for the year ended December 31, 2018 increased $691.3 million from the same period in 2017 and experienced a 48 basis point increase in tax-equivalent yield. The increase in average loans and leases was partially related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $566.2 million, as well as organic loan growth between the periods. Average interest-bearing deposits for the year ended December 31, 2018 increased $604.0 million from the same period in 2017 and experienced a 36 basis point increase in rates paid. The increase in average interest-bearing deposits was partially related to the interest-bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million.

The Provision of $7.2 million for the year ended December 31, 2018 increased $4.6 million as compared to $2.6 million for the year ended December 31, 2017. Primary contributors to the increased Provision were the $2.7 million increase in net loan and lease charge-offs as well as the additional Allowance associated with increased loan volume.

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Noninterest income of $76.0 million for the year ended December 31, 2018 increased $16.9 million, or 28.5%, as compared to $59.1 million for the year ended December 31, 2017. Other operating income increased $6.2 million, primarily due to the $4.0 million increase in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. Fees for wealth management services increased $3.6 million, primarily related to the $460.8 million increase in wealth assets under management, administration, supervision and brokerage from $12.97 billion at December 31, 2017 to $13.43 billion at December 31, 2018. Capital markets revenue increased $2.5 million, primarily related to a full year of operations for our capital markets group, which was formed during the second quarter on 2017. Insurance commissions increased $2.2 million partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in addition to organic growth.

Noninterest expense of $140.3 million for the year ended December 31, 2018 increased $25.9 million, or 22.6%, as compared to $114.4 million for the year ended December 31, 2017. These increases were largely due to the additional expenses associated with the staff and facilities assumed in the RBPI Merger and to a lesser extent, recruiting efforts of certain key leadership positions as well as increases in our incentive accruals.

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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;


•	Noninterest Income, which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit services;


•	Noninterest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees, due diligence, merger-related and merger integration expenses, and other operating expenses; and


•	Income Tax Expense, which include state and federal jurisdictions.

Net Interest Income

Rate/Volume Analyses (Tax-equivalent Basis)⁽¹⁾

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 average balances (volume) and the change in average interest rates (rate) of tax-equivalent net interest income for the years 2019 as compared to 2018, and 2018 as compared to 2017. The change in interest income / expense due to both volume and rate has been allocated to changes due to volume.



	Year Ended December 31,
(dollars in thousands)	2019 Compared to 2018									2018 Compared to 2017
increase/(decrease)	Volume			Rate			Total			Volume			Rate			Total
Interest income:
Interest-bearing deposits with banks	$	62		$	217		$	279		$	18		$	72		$	90
Investment securities – taxable	1,257			1,219			2,476			2,131			1,494			3,625
Investment securities – nontaxable	(195		)	16			(179		)	(215		)	(14		)	(229		)
Loans and leases	9,087			718			9,805			31,524			16,109			47,633
Total interest income	10,211			2,170			12,381			33,458			17,661			51,119
Interest expense:
Savings, NOW and market rate accounts	1,330			9,718			11,048			792			4,779			5,571
Wholesale deposits	981			906			1,887			695			2,261			2,956
Retail time deposits	(586		)	3,035			2,449			2,147			1,130			3,277
Borrowed funds – short-term	(936		)	336			(600		)	552			1,450			2,002
Borrowed funds – long-term	(796		)	88			(708		)	(1,096		)	253			(843		)
Subordinated notes	9			(6		)	3			3,203			(256		)	2,947
Junior subordinated debentures	10			75			85			945			297			1,242
Total interest expense	12			14,152			14,164			7,238			9,914			17,152
Interest differential	$	10,199		$	(11,982	)	$	(1,783	)	$	26,220		$	7,747		$	33,967

(1) The tax rate used in the calculation of the tax-equivalent income is 21% for 2019 and 2018 and 35% for 2017.

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Analysis of Interest Rates and Interest Differential

The table below presents the major asset and liability categories on an average daily basis for the periods presented, along with tax-equivalent interest income and expense and key rates and yields:



	For the Year Ended December 31,
	2019							2018							2017
(dollars in thousands)	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid
Assets:
Interest-bearing deposits with banks	$	46,408		$	543	1.17	%	$	37,550		$	264	0.70	%	$	34,122		$	174	0.51	%
Investment securities - available for sale:
Taxable	566,645			13,862		2.45		513,114			11,457		2.23		409,813			8,022		1.96
Tax –Exempt	7,428			167		2.25		16,966			346		2.04		27,062			575		2.12
Total investment securities – available for sale	574,073			14,029		2.44		530,080			11,803		2.23		436,875			8,597		1.97
Investment securities – held to maturity	11,099			302		2.72		8,232			234		2.84		5,621			159		2.83
Investment securities – trading	8,237			172		2.09		8,237			169		2.05		4,185			54		1.29
Loans and leases^(1)(2)(3)	3,533,702			178,829		5.06		3,356,295			169,024		5.04		2,664,944			121,391		4.56
Total interest-earning assets	4,173,519			193,875		4.65		3,940,394			181,494		4.61		3,145,747			130,375		4.14
Cash and due from banks	12,703							9,853							13,293
Allowance for loan and lease losses	(20,828		)					(18,447		)					(17,181		)
Other assets	518,507							420,322							274,287
Total assets	$	4,683,901						$	4,352,122						$	3,416,146
Liabilities:
Savings, NOW, and market rate accounts	$	1,969,205		$	19,908	1.01	%	$	1,715,239		$	8,860	0.52	%	$	1,383,560		$	3,289	0.24	%
Wholesale deposits	300,148			6,908		2.30		251,384			5,021		2.00		188,179			2,065		1.10
Time deposits	492,110			9,120		1.85		539,934			6,671		1.24		330,797			3,394		1.03
Total interest-bearing deposits	2,761,463			35,936		1.30		2,506,557			20,552		0.82		1,902,536			8,748		0.46
Short-term borrowings	129,457			2,792		2.16		178,582			3,392		1.90		128,008			1,390		1.09
Long-term FHLB advances	51,709			1,069		2.07		93,503			1,777		1.90		161,004			2,620		1.63
Subordinated notes	98,612			4,578		4.64		98,462			4,575		4.65		33,153			1,628		4.91
Junior subordinated debt	21,660			1,373		6.34		21,491			1,288		5.99		997			46		4.61
Total interest-bearing liabilities	3,062,901			45,748		1.49		2,898,595			31,584		1.09		2,225,698			14,432		0.65
Noninterest-bearing deposits	900,156							856,506							751,069
Other liabilities	131,889							55,436							40,109
Total noninterest-bearing liabilities	1,032,045							911,942							791,178
Total liabilities	4,094,946							3,810,537							3,016,876
Shareholders’ equity	588,955							541,585							399,270
Total liabilities and shareholders’ equity	$	4,683,901						$	4,352,122						$	3,416,146
Net interest spread						3.16							3.52							3.49
Effect of noninterest-bearing sources						0.39							0.28							0.20
Net interest income/margin on earning assets				$	148,127	3.55	%				$	149,910	3.80	%				$	115,943	3.69	%
Tax-equivalent adjustment⁽⁴⁾				$	486	0.01	%				$	439	0.01	%				$	816	0.03	%

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(1)	Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest income.


(2)	Includes portfolio loans and leases and loans held for sale.


(3)	Interest on loans and leases includes deferred fees of $2.3 million, $1.5 million and $947 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.


(4)	Tax rate used for tax-equivalent calculations is 21% for 2019 and 2018 and 35% for 2017, respectively.

Tax-Equivalent Net Interest Income and Margin – 2019 Compared to 2018

Tax-equivalent net interest income of $148.1 million for the year ended December 31, 2019 decreased $1.8 million as compared to $149.9 million for the year ended December 31, 2018. Tax-equivalent net interest margin of 3.55% for the year ended December 31, 2019 decreased 25 basis points as compared to 3.80% for the year ended December 31, 2018. These decreases were primarily driven by the 48 basis point increase in the rate paid on interest-bearing deposits for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

Interest expense on interest-bearing deposits of $35.9 million for the year ended December 31, 2019 increased $15.4 million as compared to $20.6 million for the year ended December 31, 2018. The increase was primarily due to a 48 basis point increase in the rate paid on interest-bearing deposits for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The increase in rate paid was related to the competitive dynamics in the markets in which we operate during the year ended 2019 and certain promotional interest rates offered during the first and second quarters of 2019. A $254.9 million increase in average interest-bearing deposits also contributed to the increase in interest expense on deposits.

Partially offsetting the effect on net interest income associated with the increase in average balances and rates paid on interest-bearing deposits were increases in interest income on tax-equivalent interest and fees on loans and leases and tax-equivalent interest income on available for sale investment securities, and decreases in interest expense on long-term FHLB advances and short-term borrowings.

Tax-equivalent interest and fees on loans and leases of $178.8 million for the year ended December 31, 2019 increased $9.8 million as compared to $169.0 million for the year ended December 31, 2018. Average loans and leases for the year ended December 31, 2019 increased $177.4 million from the same period in 2018 and experienced a two basis point increase in tax-equivalent yield. The increase in average loans and leases was related to organic loan growth between the periods.

Tax-equivalent interest income on available for sale investment securities of $14.0 million for the year ended December 31, 2019 increased $2.2 million as compared to $11.8 million for the year ended December 31, 2018. Average available for sale investment securities for the year ended December 31, 2019 increased $44.0 million from the same period in 2018 and experienced a 21 basis point increase in tax-equivalent yield.

Interest expense on long-term FHLB advances of $1.1 million for the year ended December 31, 2019 decreased $708 thousand as compared to $1.8 million for the year ended December 31, 2018. Average long-term FHLB advances decreased $41.8 million, offset by a 17 basis point increase in the rate paid for the year ended December 31, 2019 as compared to the same period in 2018.

Interest expense on short-term borrowings of $2.8 million for the year ended December 31, 2019 decreased $600 thousand as compared to $3.4 million for the year ended December 31, 2018. Average short-term borrowings decreased $49.1 million, offset by a 26 basis point increase in the rate paid for the year ended December 31, 2019 as compared to the same period in 2018.

Tax-Equivalent Net Interest Income and Margin – 2018 Compared to 2017

Tax-equivalent net interest income of $149.9 million for the year ended December 31, 2018 increased $34.0 million as compared to $115.9 million for the year ended December 31, 2017. Tax-equivalent net interest margin of 3.80% for the year ended December 31, 2018 increased 11 basis points as compared to 3.69% for the year ended December 31, 2017.

Tax-equivalent interest and fees on loans and leases of $169.0 million for the year ended December 31, 2018 increased $47.6 million as compared to $121.4 million for the year ended December 31, 2017. Average loans and leases for the year ended December 31, 2018 increased $691.3 million from the same period in 2017 and experienced a 48 basis point increase in tax-equivalent yield. The increase in average loans and leases was primarily related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $566.2 million, as well as organic loan growth between the periods.

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Tax-equivalent interest income on available for sale investment securities of $11.8 million for the year ended December 31, 2018 increased $3.2 million as compared to $8.6 million for the year ended December 31, 2017. Average available for sale investment securities for the year ended December 31, 2018 increased $93.2 million from the same period in 2018 and experienced a 26 basis point increase in tax-equivalent yield.

Partially offsetting the effect on net interest income associated with the increase in average balances and yields in loans and leases and available for sale investment securities were increases in interest expense on deposits and borrowings.

Interest expense on interest-bearing deposits of $20.6 million for the year ended December 31, 2018 increased $11.9 million as compared to $8.7 million for the year ended December 31, 2017. Average interest-bearing deposits for the year ended December 31, 2018 increased $604.0 million from the same period in 2017 and experienced a 36 basis point increase in rates paid. The increase in average interest-bearing deposits was primarily related to the interest-bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million.

Interest expense on borrowings of $11.0 million for the year ended December 31, 2018 increased $5.3 million as compared to $5.7 million for the year ended December 31, 2017. The increase related to increases in interest expense on subordinated notes, short-term borrowings, and junior subordinated debt of $2.9 million, $2.0 million, and $1.2 million, respectively, partially offset by a decrease in interest expense on long-term FHLB advances of $843 thousand. Average subordinated notes for the year ended December 31, 2018 increased $65.3 million from the same period in 2017 and experienced a 26 basis point decrease in rates paid. The volume increase in subordinated notes was the result of the December 13, 2017 issuance of $70 million ten-year, 4.25% fixed-to-floating subordinated notes. Average short-term borrowings and junior subordinated notes for the year ended December 31, 2018 increased $50.6 million and $20.5 million, respectively, from the same period in 2017 and experienced an 81 and 138 basis point increase, respectively, in rates paid. The volume increase in junior subordinated debt was related to the $21.4 million of floating rate junior subordinated debentures assumed in the RBPI Merger.

Tax-Equivalent Net Interest Margin – Quarterly Comparison

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



Quarter	Year	Earning-Asset Yield		Interest- Bearing Liability Cost		Net Interest Spread		Effect of Non- Interest- Bearing Sources		Tax-Equivalent Net Interest Margin
4^th	2019	4.39	%	1.41	%	2.98	%	0.38	%	3.36	%
3^rd	2019	4.69		1.55		3.14		0.40		3.54
2^nd	2019	4.69		1.56		3.13		0.42		3.55
1^st	2019	4.83		1.46		3.37		0.38		3.75
4^th	2018	4.74		1.30		3.44		0.35		3.79

Interest Rate Sensitivity

Management actively manages the Corporation’s interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income changes associated with interest rate movements and to achieve sustainable growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies 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. This is accomplished through the management of the investment portfolio, the pricings of loans and deposit offerings and through wholesale funding. Wholesale funding is available from multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window, federal funds from correspondent banks, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program, and Insured Cash Sweep (“ICS”).

Management utilizes several tools to measure the effect of interest rate risk on net interest income. These methods include gap analysis, market value of portfolio equity analysis, and net interest income simulations under various scenarios. The results of these analyses are compared to limits established by the Corporation’s ALCO policies and make adjustments as appropriate if the results are outside the established limits.

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The below 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 management’s projected net interest income over the next 12 months.

This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve months. By definition, the simulation assumes static interest rates and does not incorporate forecasted changes in the yield curve. 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 December 31, 2019					Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2018
(dollars in thousands)	Amount			Percentage		Amount			Percentage
+300 basis points	$	15,357		10.52	%	$	5,644		3.74	%
+200 basis points	10,217			7.00		3,734			2.47
+100 basis points	5,079			3.48		1,860			1.23
-100 basis points	(6,817		)	(4.67	)	(6,546		)	(4.34	)

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of December 31, 2019 in the +100 basis point scenario, demonstrating that a 100 basis point increase in interest rates would have a positive impact on net interest income over the next 12 months. The balance sheet is more asset sensitive in a rising-rate environment as of December 31, 2019 than it was as of December 31, 2018. The increase was related to a significant increase in variable rate assets in the 4^th quarter of 2019. The increase in the loss in the -100 basis point scenario is due the rate reduction in variable rate assets is greater than the ability to decrease rates on interest bearing liabilities.

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 economic environment and emerging from an extended period of very low interest rates, the reliability of management’s assumptions in the interest rate simulation model is more uncertain than in prior years. Actual customer behavior, as it relates to deposit activity, may be significantly different than expected behavior, which could cause an unexpected outcome and may result in lower net interest income than that derived from the analysis referenced above.

Gap Analysis

The interest sensitivity, or gap analysis, identifies interest rate risk by showing repricing gaps in the Corporation’s balance sheet. All assets and liabilities are reflected based on behavioral sensitivity, which is usually the earliest of: repricing, maturity, contractual amortization, prepayments or likely call dates. Non-maturity deposits, such as NOW, savings and money market accounts are spread over various time periods based on the expected sensitivity of these rates considering liquidity. Non-rate-sensitive assets and liabilities are spread over time periods to reflect management’s view of the maturity of these funds.

Non-maturity deposits (demand deposits in particular) are recognized by the industry to have different sensitivities to interest rate environments. Consequently, it is an accepted practice to spread non-maturity deposits over defined time periods to capture that sensitivity. Commercial demand deposits are often in the form of compensating balances, and fluctuate inversely to the level of interest rates; the maturity of these deposits is reported as having a shorter life than typical retail demand deposits. Additionally, the industry practice has suggested distribution limits for non-maturity deposits. However, management has taken a more conservative approach than these limits would suggest by forecasting these deposit types with a shorter maturity. These assumptions are also reflected in the above interest rate simulation.

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The following table presents the Corporation’s gap analysis as of as of December 31, 2019:



(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	$	42.3		$	—		$	—		$	—		$	—		$	42.3
Investment securities⁽¹⁾	546.7			106.7			241.0			132.8			—			1,027.2
Loans and leases⁽²⁾	1,732.6			381.6			1,228.0			351.3			—			3,693.5
Allowance	—			—			—			—			(22.6		)	(22.6		)
Cash and due from banks	—			—			—			—			11.6			11.6
Operating lease right-of-use assets	0.7			2.1			10.5			27.7			—			41.0
Other assets	—			—			—			—			470.2			470.2
Total assets	$	2,322.3		$	490.4		$	1,479.5		$	511.8		$	459.2		$	5,263.2
Liabilities and shareholders’ equity:
Demand, noninterest-bearing	$	25.4		$	76.0		$	263.6		$	533.2		$	—		$	898.2
Savings, NOW and market rate	89.7			269.3			848.9			1,063.9			—			2,271.8
Time deposits	66.8			200.0			137.1			1.2			—			405.1
Wholesale non-maturity deposits	177.9			—			—			—			—			177.9
Wholesale time deposits	35.2			48.0			6.0			—			—			89.2
Short-term borrowings	493.2			—			—			—			—			493.2
Long-term FHLB advances	5.0			7.4			39.9			—			—			52.3
Subordinated notes	—			30.0			68.7			—			—			98.7
Junior subordinated debentures	21.8			—			—			—			—			21.8
Operating lease liabilities	0.8			2.4			11.6			30.5			—			45.3
Other liabilities	—			—			—			—			97.5			97.5
Shareholders’ equity	21.9			65.6			349.8			174.9			—			612.2
Total liabilities and shareholders’ equity	$	937.7		$	698.7		$	1,725.6		$	1,803.7		$	97.5		$	5,263.2
Interest-earning assets	$	2,321.6		$	488.3		$	1,469.0		$	484.1		$	—		$	4,763.0
Interest-bearing liabilities	889.6			554.7			1,100.6			1,065.1			—			3,610.0
Difference between interest-earning assets and interest-bearing liabilities	$	1,432.0		$	(66.4	)	$	368.4		$	(581.0	)	$	—		$	1,153.0
Cumulative difference between interest earning assets and interest-bearing liabilities	$	1,432.0		$	1,365.6		$	1,734.0		$	1,153.0		$	—		$	1,153.0
Cumulative earning assets as a % of cumulative interest-bearing liabilities	261		%	195		%	168		%	132		%


(1)	Investment securities include available for sale, held to maturity and trading.


(2)	Loans include portfolio loans and leases 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, 2018.

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Provision for Loan and Lease Losses

General Discussion of the Allowance for Loan and Lease Losses

The balance of the Allowance is determined based on management’s review and evaluation of the loan and lease portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries and losses.

Increases to the Allowance are implemented through a corresponding Provision (expense) in the Corporation’s statement of income. Loans and leases deemed uncollectible are charged against the Allowance. Recoveries of previously charged-off amounts are credited to the Allowance.

While management considers the Allowance to be adequate, based on information currently available, future additions to the Allowance may be necessary due to changes in economic conditions or management’s assumptions as to future delinquencies, recoveries and losses and management’s intent regarding the disposition of loans. In addition, the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia, as an integral part of their examination processes, periodically review the Corporation’s Allowance.

The Corporation’s Allowance is comprised of four components that are calculated based on various independent methodologies. All components of the Allowance are based on management’s estimates. These estimates are summarized earlier in this document under the heading “Critical Accounting Policies, Judgments and Estimates.”

The four components of the Allowance are as follows:


•	Specific Loan Evaluation Component - Loans and leases for which management has reason to believe it is probable that it will not be able to collect all contractually due amounts of principal and interest are evaluated for impairment on an individual basis and a specific allocation of the Allowance is assigned, if necessary.

•

Historical Charge-Off Component - Homogeneous pools of loans are evaluated to determine average historic charge-off rates. Management applies a rolling, twenty quarter charge-off history as a look-back period to determine these average charge-off rates. Management evaluates the length of this look-back period to determine its appropriateness. In addition, management develops an estimate of a loss emergence period for each segment of the loan portfolio. The loss emergence period estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan.

•

Qualitative Factors Component - Various qualitative factors are considered as they relate to the different homogeneous loan pools to adjust the historic charge-off rates so that they reflect current economic conditions that may not be accurately reflected in the historic charge-off rates. These factors include delinquency trends, economic conditions, loan terms, credit grades, concentrations of credit, regulatory environment and other relevant factors. The resulting adjustments are combined with the historic charge-off rates and result in an allocation rate for each homogeneous loan pool.

•

Unallocated Component - This amount represents the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating the specific, historical, and qualitative losses in the portfolio discussed above. There are many factors considered, such as the inherent delay in obtaining information regarding a customer’s financial information or changes in their business condition, the judgmental nature of loan and lease evaluations, the delay in interpreting economic trends, and the judgmental nature of collateral assessments.

As part of the process of calculating 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 employees as well as an external loan review service. The results of these reviews are 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 well-defined weaknesses that may jeopardize the

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liquidation of the collateral and repayment 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. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.

Consumer credit exposure, which includes residential mortgages, home equity lines and loans, leases and consumer loans, are assigned a credit risk profile based primarily on payment activity (that is, their delinquency status).

Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for details regarding credit quality indicators associated with the Corporation’s loan and lease portfolio.

ALLL Portfolio Segmentation – The Corporation’s loan and lease portfolio is divided into specific segments of loans and leases having similar characteristics. These segments are as follows:


•	Commercial mortgage⁽¹⁾


•	Home equity lines and loans


•	Residential mortgage


•	Construction


•	Commercial and industrial


•	Consumer


•	Leases

(1) Management further segments commercial mortgages between owner-occupied and non-owner occupied to account for different risk profiles and sensitivity to market factors that are attributed to each sub-segment.

Refer to Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K and the section of this MD&A under the heading Portfolio Loans and Leases for details of the Corporation’s loan and lease portfolio, broken down by portfolio segment.

Impairment Measurement - In accordance with guidance provided by ASC 310-10, "Receivables", the Corporation employs one of three methods to determine and measure impairment:


•	the Present Value of Future Cash Flow Method;


•	the Fair Value of Collateral Method;


•	the Observable Market Price of a Loan Method.

Loans and leases for which there is an indication that all contractual payments may not be collectible are evaluated for impairment on an individual basis. Loans that are evaluated on an individual basis include non-performing loans, troubled debt restructurings and purchased credit-impaired loans.

Nonaccrual Loans – In general, loans and leases that are delinquent on contractually due principal or interest payments for more than 89 days are placed on nonaccrual status and any unpaid interest is reversed as a charge to interest income. When the loan resumes payment, all payments (principal and interest) are applied to reduce principal. After a period of six months of satisfactory performance, the loan may be placed back on accrual status. Any interest payments received during the nonaccrual period that had been applied to reduce principal are reversed and recorded as a deferred fee which accretes to interest income over the remaining term of the loan or lease. In certain cases, management may have information about a loan or lease that may indicate a future disruption or curtailment of contractual payments. In these cases, management will preemptively place the loan or lease on nonaccrual status.

Troubled Debt Restructurings (“TDRs”) – Management follows guidance provided by ASC 310-40, “Troubled Debt Restructurings by Creditors.” A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider in the normal course of business. A concession may include an extension of repayment terms which would not normally be granted, a reduction of interest rate or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a concession, management will make the necessary disclosures related to the TDR. In certain cases, a modification may be

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made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not considered to be a TDR. Once a loan or lease has been modified and is considered a TDR, it is reported as an impaired loan or lease. If the loan or lease deemed a TDR has performed for at least six months at the level prescribed by the modification, it is not considered to be non-performing; however, it will generally continue to be reported as impaired. Loans and leases that have performed for at least six months are reported as TDRs in compliance with modified terms.

Refer to Section G, “Troubled Debt Restructurings,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Charge-off Policy - The Corporation’s charge-off policy is that, on a periodic basis, not less often than quarterly, delinquent and non-performing loans that exceed the following limits are considered for full or partial charge-off:


•	Open-ended consumer loans exceeding 180 days past due.


•	Closed-ended consumer loans exceeding 120 days past due.


•	All commercial/business purpose loans exceeding 180 days past due.


•	All leases exceeding 120 days past due.

Any other loan or lease, for which management has reason to believe collectability is unlikely, and for which sufficient collateral does not exist, is also charged off.

Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding the Corporation's charge-offs and factors which influenced management’s judgment with respect thereto.

Loans Acquired in Mergers and Acquisitions

In accordance with GAAP, the loans acquired from RBPI, FKB, FBD and CBH were recorded at their fair value with no carryover of the previously associated allowance for loan loss.

Certain loans were acquired which exhibited deteriorated credit quality since origination and for which management does not expect to collect all contractual payments. Accounting for these purchased credit-impaired (“PCI”) loans is done in accordance with ASC 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The loans were recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield. On a regular basis, at least quarterly, an assessment is made on PCI loans to determine if there has been any improvement or deterioration of the expected cash flows. If there has been improvement, an adjustment is made to increase the recognition of interest on the PCI loan, as the estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in the expected cash flows of a PCI loan, an allowance is recorded in connection with the loan. Management evaluates PCI loans individually for further impairment as well as for improvements to expected cash flows.

Loans acquired in acquisitions which do not exhibit deteriorated credit quality at the time of acquisition are accounted for under ASC 310-20 and receive a loan mark based on a credit and interest-rate analysis. The resulting discount or premium is accreted or amortized, respectively, to interest income over their remaining maturity. These non-impaired acquired loans, along with the balance of the Corporation's loan and lease portfolio are evaluated on either an individual basis or on a collective basis for impairment. For more information regarding the Corporation's impaired loans and leases, refer to Section F, “Allowance for Loan and Lease Losses,” and Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. For more information regarding loan marks, refer to Section I, “Loan Mark,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Asset Quality and Analysis of Credit Risk

As of December 31, 2019, total non-performing loans and leases were $10.6 million, representing 0.29% of portfolio loans and leases, as compared to $12.8 million, or 0.37% of portfolio loans and leases, as of December 31, 2018. The $2.2 million decrease in non-performing loans and leases was primarily due to increases of $2.2 million and $1.7 million in commercial and industrial loans and commercial mortgage loans, respectively, offset by decreases of $3.1 million, $2.8 million, $92 thousand, and $47 thousand in non-performing residential mortgage loans, home equity loans and lines, leases, and consumer loans, respectively.

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The Provision for the years ended December 31, 2019, 2018 and 2017 was $8.5 million, $7.2 million and $2.6 million, respectively. The Provision recorded during any given period reflects an allocation related to net new loan volume, changes in the economic environment, and the replenishment of Allowance consumed by charge-offs of loans and leases for which the Corporation had not specifically reserved. Net loan charge-offs for the years ended December 31, 2019 and 2018 each totaled $5.3 million as compared to $2.6 million for the same period in 2017. Total portfolio loans increased by $262.2 million during the year ended December 31, 2019 as compared to $141.3 million and $750.4 million for the same periods in 2018 and 2017, respectively. The increase in 2017 was largely the result of the loans and leases acquired in the RBPI Merger. As of December 31, 2019, the Allowance of $22.6 million represented 0.61% of portfolio loans and leases, as compared to the Allowance as of December 31, 2018 of $19.4 million, which represented 0.57% of portfolio loans and leases as of that date.

As of December 31, 2019, the Corporation had no other real estate owned (“OREO”) as compared to $417 thousand as of December 31, 2018. The decrease was primarily due to the sale of the one residential property and two manufactured homes that had been carried at $417 thousand as of December 31, 2018. In addition to the sale of these properties, one $87 thousand commercial property was foreclosed and subsequently sold during the twelve months ended December 31, 2019.

As of December 31, 2019, the Corporation had $8.0 million of TDRs, of which $5.1 million were in compliance with their modified terms for six months or greater, and hence, excluded from non-performing loans and leases. As of December 31, 2018, the Corporation had $11.0 million of TDRs, of which $9.7 million were in compliance with their modified terms.

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 payments in accordance with the original terms of the loans and leases. Included in impaired loans and leases are non-accrual loans and leases and TDRs in compliance with modified terms. PCI loans are not included in impaired loan and lease totals. As of December 31, 2019, the Corporation had $15.7 million of impaired loans and leases, as compared to $22.6 million as of December 31, 2018. For more information regarding the Corporation's impaired loans and leases, refer to Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

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

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Non-Performing Assets, TDRs and Related Ratios as of or for the Year Ended December 31,



(dollars in thousands)	2019			2018			2017			2016			2015
Non-accrual loans and leases	$	10,648		$	12,820		$	8,579		$	8,363		$	10,244
Loans 90 days or more past due and still accruing	—			—			—			—			—
Total non-performing loans and leases	10,648			12,820			8,579			8,363			10,244
Other real estate owned	—			417			304			1,017			2,638
Total non-performing assets	$	10,648		$	13,237		$	8,883		$	9,380		$	12,882
TDRs included in non-performing assets	$	3,018		$	1,217		$	3,289		$	2,632		$	1,935
TDRs in compliance with modified terms	5,071			9,745			5,800			6,395			4,880
Total TDRs	$	8,089		$	10,962		$	9,089		$	9,027		$	6,815
Allowance for loan and lease losses to non-performing loans and leases	212.3		%	151.5		%	204.3		%	209.1		%	154.8		%
Non-performing loans and leases to total loans and leases	0.29			0.37			0.26			0.33			0.45
Allowance for loan losses to total portfolio loans and leases	0.61			0.57			0.53			0.69			0.70
Non-performing assets to total assets	0.20			0.28			0.20			0.27			0.43
Period-end portfolio loans and leases	$	3,689,313		$	3,427,154		$	3,285,858		$	2,535,425		$	2,268,988
Average portfolio loans and leases	3,594,449			3,397,479			2,660,999			2,419,950			2,153,542
Allowance for loan and lease losses	22,602			19,426			17,525			17,486			15,857
Interest income that would have been recorded on impaired loans if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination	$	984		$	1,240		$	708		$	1,098		$	1,100
Interest income on impaired loans included in net income for the period	440			774			485			551			513

As of December 31, 2019, management is not aware of any loan or lease, other than those disclosed in the table above, for which it has any serious doubt as to the borrower’s ability to pay in accordance with the terms of the loan.

Summary of Changes in the Allowance for Loan and Lease Losses



(dollars in thousands)	2019			2018			2017			2016			2015
Balance, January 1	$	19,426		$	17,525		$	17,486		$	15,857		$	14,586
Charge-offs:
Consumer	(720		)	(311		)	(154		)	(173		)	(177		)
Commercial and industrial	(781		)	(1,374		)	(692		)	(1,298		)	(1,220		)
Real estate	(3,450		)	(1,018		)	(1,056		)	(1,008		)	(1,615		)
Leases	(2,565		)	(3,132		)	(1,224		)	(808		)	(442		)
Total charge-offs	(7,516		)	(5,835		)	(3,126		)	(3,287		)	(3,454		)
Recoveries:
Consumer	103			10			8			23			29
Commercial and industrial	153			24			25			93			35
Real estate	1,211			74			182			178			160
Construction	4			2			4			64			4
Leases	714			43			328			232			101
Total recoveries	2,185			543			547			590			329
Net charge-offs	(5,331		)	(5,292		)	(2,579		)	(2,697		)	(3,125		)
Provision for loan and lease losses	8,507			7,193			2,618			4,326			4,396
Balance, December 31	$	22,602		$	19,426		$	17,525		$	17,486		$	15,857
Ratio of net charge-offs to average portfolio loans outstanding	0.15		%	0.16		%	0.10		%	0.17		%	0.15		%

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Allocation of Allowance for Loan and Lease Losses

The following table sets forth an allocation of the Allowance by portfolio segment. The specific allocations in any portfolio segment may be changed in the future to reflect then-current conditions. Accordingly, management considers the entire Allowance to be available to absorb losses in any portfolio segment.



	December 31,
	2019				2018				2017				2016				2015
(dollars in thousands)	Allowance		% Loans to Total Loans		Allowance		% Loans to Total Loans		Allowance		% Loans to Total Loans		Allowance		% Loans to Total Loans		Allowance		% Loans to Total Loans
Allowance at end of period applicable to:
Commercial mortgage	$	10,434	51.9	%	$	7,567	48.3	%	$	7,550	46.4	%	$	6,227	43.8	%	$	5,199	42.5	%
Home equity lines and loans	890		5.3		1,003		6.1		1,086		6.6		1,255		8.2		1,307		9.2
Residential mortgage	1,538		13.3		1,813		14.4		1,926		14.0		1,917		16.3		1,740		17.9
Construction	997		4.3		1,485		5.3		937		6.5		2,233		5.6		1,324		4.0
Commercial and industrial	6,029		19.2		5,461		20.3		5,038		21.9		5,142		22.9		5,609		23.1
Consumer	353		1.5		229		1.4		246		1.1		153		1.0		142		1.0
Leases	2,361		4.5		1,868		4.2		742		3.5		559		2.2		518		2.3
Unallocated	—		—		—		—		—		—		—		—		18		—
Total	$	22,602	100.0	%	$	19,426	100.0	%	$	17,525	100.0	%	$	17,486	100.0	%	$	15,857	100.0	%

Noninterest Income

2019 Compared to 2018

The increase in capital markets revenue was primarily due to increased volume and size of interest rate swap transactions with commercial loan customers during the year ended December 31, 2019 as compared to the year ended December 31, 2019 driven by the continued organic growth of our capital markets group. The increase in fees for wealth management services was primarily related to the $3.12 billion increase in wealth assets under management, administration, supervision and brokerage from $13.43 billion at December 31, 2018 to $16.55 billion at December 31, 2019, and was comprised of a $1.7 million increase from accounts whose fees are charged on a flat or fixed basis, primarily due to a $1.91 billion increase in fixed rate flat-fee account balances, and a $328 thousand increase in fees derived from market-value based fee accounts.

The decrease in other operating income, which is further detailed in the table below, was primarily due to the $4.3 million decrease in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger, partially offset by increases of $1.5 million and $1.2 million in gain on trading investments and miscellaneous other income, respectively.

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Components of other operating income for the indicated years ended December 31 include:



(dollars in thousands)	2019		2018			2017
Visa debit card income	$	1,795	$	1,700		$	1,443
Bank owned life insurance income	1,239		1,177			959
Commissions and fees	1,353		1,270			621
Safe deposit box rentals	369		386			365
Other investment income	552		337			48
Rent income	31		150			193
Gain (loss) on trading investments	1,335		(153		)	613
Recovery of purchase accounting fair value loan mark	60		4,338			337
Miscellaneous other income	3,554		2,341			742
Other operating income	$	10,288	$	11,546		$	5,321

2018 Compared to 2017

Noninterest income of $76.0 million for the year ended December 31, 2018 increased $16.9 million, or 28.5%, as compared to $59.1 million for the year ended December 31, 2017. The increase was primarily due to increases of $6.2 million, $3.6 million, $2.5 million, and $2.2 million in other operating income, fees for wealth management services, capital markets revenue, and insurance commissions, respectively. The increase in other operating income, which is further detailed in the table above, was primarily due to the $4.0 million increase in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. The increase in fees for wealth management services was primarily related to the $460.8 million increase in wealth assets under management, administration, supervision and brokerage from $12.97 billion at December 31, 2017 to $13.43 billion at December 31, 2018. The increase in capital markets revenue was primarily related to a full year of operations for our capital markets group, which was formed during the second quarter of 2017, as well as organic growth. The increase in insurance commissions was partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition.

Noninterest Expense

2019 Compared to 2018

Noninterest expense of $146.5 million for the year ended December 31, 2019 increased $6.2 million, or 4.4%, as compared to $140.3 million for the year ended December 31, 2018.

The increase was primarily due to a $7.7 million increase in salaries and wages, largely driven by a pre-tax, non-recurring, charge of $4.5 million related to the Incentive Program recognized during the first quarter of 2019, and to a lesser extent, additional recruiting efforts and increases in our incentive accruals.

Also contributing to the increase were increases of $1.4 million, $1.3 million, $1.2 million and $992 thousand in other operating expenses, furniture, fixtures and equipment expenses, professional fees, and occupancy and bank premises expenses, respectively.

Partially offsetting these increases in noninterest expense was a decrease of $7.8 million in due diligence, merger-related and merger integration expenses for the year ended December 31, 2019 as compared to the same period in 2018.

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Components of other operating expense for the indicated years ended December 31 include:



(dollars in thousands)	2019		2018			2017
Contributions	$	1,709	$	1,659		$	1,511
Deferred compensation expense	1,228		(492		)	783
Director fees	469		544			542
Dues and subscriptions	1,652		1,150			871
FDIC insurance	817		1,716			1,580
Impairment of OREO and other repossessed assets	—		89			208
Insurance	865		851			838
Loan processing	816		1,068			423
Miscellaneous other expense	4,287		3,765			2,545
MSR amortization and impairment	597		830			745
Other taxes	185		60			39
Outsourced services	200		243			315
Portfolio maintenance	410		435			417
Postage	685		763			575
Stationary and supplies	553		536			488
Telephone and data lines	1,752		1,909			1,616
Temporary help and recruiting	703		416			852
Travel and entertainment	1,141		1,093			900
Other operating expense	$	18,069	$	16,635		$	15,248

2018 Compared to 2017

Noninterest expense of $140.3 million for the year ended December 31, 2018 increased $25.9 million, or 22.6%, as compared to $114.4 million for the year ended December 31, 2017. The increase was primarily due to increases of $13.4 million and $2.7 million in salaries and wages and employee benefits, respectively. A majority of these increases were related to the additional expenses associated with the staff assumed in the RBPI Merger, and to a lesser extent, recruiting efforts of certain key leadership positions and increases in our incentive accruals. The remaining increase in noninterest expense consisted of increases of $1.7 million, $1.7 million, $1.4 million, $1.3 million, and $1.0 million in occupancy and bank premises expenses, due diligence, merger-related and merger integration expenses, data processing expenses, other operating expenses, and furniture, fixtures and equipment expenses, respectively. These increases were also primarily due to the additional expenses associated with the facilities assumed in the RBPI Merger. While much of the merger-related expenses associated with the RBPI Merger were recorded at the time of the merger, certain expenses incurred in connection with the banking system conversion, contract terminations and lease terminations are recorded as they are incurred.

Secondary Market Sold-Loan Repurchase Demands

In the course of originating residential mortgage loans and selling those loans in the secondary market, the Corporation makes various representations and warranties to the purchasers of the mortgage loans. Each residential mortgage loan originated by the Corporation is evaluated by an automated underwriting application, which verifies the underwriting criteria and certifies the loan’s eligibility for sale to the secondary market. Any exceptions discovered during this process are remedied prior to sale. These representations and warranties also apply to underwriting the real estate appraisal opinion of value for the collateral securing these loans. Under the representations and warranties, failure by the Corporation to comply with the underwriting and appraisal standards could result in the Corporation’s being required to repurchase the mortgage loan or to reimburse the investor for losses incurred (make whole requests) if such failure cannot be cured by the Corporation within the specified period following discovery. As of December 31, 2019, there were no pending or unsettled loan repurchase demands.

Income Tax Expense

Income tax expense of $15.6 million for the year ended December 31, 2019 increased $1.4 million as compared to $14.2 million for the year ended December 31, 2018. The effective tax rates for the years ended December 31, 2019 and 2018 were

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20.9% and 18.2%, respectively. The increase was primarily related to a $2.6 million decrease in discrete benefits for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The $2.6 million discrete benefit recorded in 2018 primarily related to certain tax return versus provision adjustments made upon the filing of the Corporation’s 2018 tax return.

Income tax expense of $14.2 million for the year ended December 31, 2018 decreased $20.1 million as compared to $34.2 million for the year ended December 31, 2017. The effective tax rates for the years ended December 31, 2018 and 2017 were 18.2% and 59.8%, respectively. The decrease was directly related to the Tax Reform enacted on December 22, 2017, which lowered the top federal corporate rate from 35% to 21%. Also contributing to the decrease in income tax expense was the absence of the $15.2 million one-time income tax charge related to the re-measurement of the Corporation’s net deferred tax asset, triggered by Tax Reform, during the year ended December 31, 2017, and the previously discussed $2.6 million income tax benefit recorded during the year ended December 31, 2018 made upon the filing of the Corporation’s tax return.

For more information related to income taxes, refer to Note 17, “Income Taxes,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

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Balance Sheet Analysis

Asset Changes

Total assets of $5.26 billion as of December 31, 2019 increased $610.8 million, or 13.1%, from $4.65 billion as of December 31, 2018. The increase was primarily due to the increases in portfolio loans and leases and available for sale investment securities discussed in the following sections, as well as $41.0 million of operating lease right-of-use assets as of December 31, 2019 included on the balance sheet as a result of a required accounting pronouncement adopted in the first quarter of 2019.

Investment Securities

Available for sale investment securities as of December 31, 2019 totaled $1.01 billion, an increase of $268.5 million from December 31, 2018. The increase was primarily due to the purchase of $500.0 million of short-term U.S. Treasury securities included on the balance sheet as of December 31, 2019, an increase of $300.0 million as compared to a similar purchase of $200.0 million of short-term U.S. Treasury securities included on the balance sheet as of December 31, 2018. This increase in U.S. Treasury securities coupled with a $76.1 million increase in mortgage-backed securities, respectively, were partially offset by decreases of $93.8 million, $7.4 million, and $6.0 million in U.S. government and agency securities, collateralized mortgage obligations, and state & political subdivision securities, respectively.

The following table details the maturity and weighted average tax-equivalent yield of the available for sale investment portfolio as of December 31, 2019:



(dollars in thousands)	Maturing During 2020			Maturing From 2021 Through 2024			Maturing From 2025 Through 2029			Maturing After 2029			Total
U.S. Treasury securities:
Amortized cost	$	500,066		$	—		$	—		$	—		$	500,066
Weighted average yield	1.01		%	—		%	—		%	—		%	1.01		%
Obligations of the U.S. government and agencies:
Amortized cost	1,555			36,592			52,930			11,102			102,179
Weighted average yield	1.63		%	1.97		%	2.58		%	2.61		%	2.35		%
State and political subdivisions:
Amortized cost	3,230			1,468			668			—			5,366
Weighted average yield	2.20		%	2.95		%	2.19		%	—		%	2.40		%
Mortgage-related securities⁽¹⁾:
Amortized cost	240			12,051			64,460			316,022			392,773
Weighted average yield	2.93		%	2.77		%	2.47		%	2.62		%	2.60		%
Other investment securities:
Amortized cost	—			650			—			—			650
Weighted average yield	—		%	3.51		%	—		%	—		%	3.51		%
Total amortized cost	$	505,091		$	50,761		$	118,058		$	327,124		$	1,001,034
Weighted average yield	1.02		%	2.21		%	2.52		%	2.62		%	1.78		%


(1)	Mortgage-related securities are included in the above table based on their contractual maturity. However, mortgage-related securities, by design, have scheduled monthly principal payments which are not reflected in this table.

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The following table details the amortized cost of the available for sale investment portfolio as of the dates indicated:



	Amortized Cost as of December 31,
(dollars in thousands)	2019		2018		2017		2016		2015
U.S. Treasury securities	$	500,066	$	200,026	$	200,077	$	200,094	$	101
Obligations of the U.S. government and agencies	102,179		198,604		153,028		83,111		101,342
Obligations of state and political subdivisions	5,366		11,372		21,352		33,625		41,892
Mortgage-backed securities	360,977		294,076		275,958		185,997		157,422
Collateralized mortgage obligations	31,796		40,150		37,596		49,488		29,756
Other investment securities	650		1,100		4,813		16,575		17,263
Total amortized cost	$	1,001,034	$	745,328	$	692,824	$	568,890	$	347,776

Portfolio Loans and Leases

The table below details the loan portfolio as of the dates indicated:



	December 31,
(dollars in thousands)	2019		2018		2017		2016		2015
Commercial mortgage	$	1,913,430	$	1,657,436	$	1,523,377	$	1,110,898	$	964,259
Home equity lines & loans	194,640		207,351		218,275		207,999		209,473
Residential mortgage	489,903		494,355		458,886		413,540		406,404
Construction	159,867		181,078		212,454		141,964		90,421
Commercial and industrial	709,257		695,584		719,312		579,791		524,515
Consumer	57,138		46,814		38,153		25,341		22,129
Leases	165,078		144,536		115,401		55,892		51,787
Total portfolio loans and leases	3,689,313		3,427,154		3,285,858		2,535,425		2,268,988
Loans held for sale	4,249		1,749		3,794		9,621		8,987
Total loans and leases	$	3,693,562	$	3,428,903	$	3,289,652	$	2,545,046	$	2,277,975

The following table summarizes the loan maturity distribution and interest rate sensitivity as of December 31, 2019. Excluded from the table are residential mortgage, home equity lines and loans, and consumer loans:



(dollars in thousands)	Maturing During 2020		Maturing From 2021 Through 2024		Maturing After 2024		Total
Loan portfolio maturity:
Commercial and industrial	$	213,392	$	264,819	$	231,046	$	709,257
Construction	57,755		58,233		43,879		159,867
Commercial mortgage	104,791		570,574		1,238,065		1,913,430
Leases	8,321		155,588		1,169		165,078
Total	$	384,259	$	1,049,214	$	1,514,159	$	2,947,632
Interest sensitivity on the above loans:
Loans with fixed rates	$	103,908	$	711,515	$	279,070	$	1,094,493
Loans with adjustable or floating rates	280,351		337,699		1,235,089		1,853,139
Total	$	384,259	$	1,049,214	$	1,514,159	$	2,947,632

The list below identifies certain key characteristics of the Corporation’s loan and lease portfolio. Refer to Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K and the section of this MD&A under the heading “Portfolio Loans and Leases” for further details.


•	Portfolio Loans and Leases - The Corporation’s $3.69 billion loan and lease portfolio is predominantly based in the Corporation’s traditional market areas of Southeastern Pennsylvania, Southern and Central New Jersey, and Delaware.

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These markets have exhibited relatively stable economic attributes, and have generally not seen the high levels of real estate price volatility experienced in other regions nationwide.

•

Concentrations - The Corporation has a significant portion of its portfolio loans (excluding leases) in real estate-related loans. As of December 31, 2019 and December 31, 2018, respectively, loans secured by real estate were $2.76 billion and $2.54 billion, or 74.8% and 74.1%, of the total loan portfolio of $3.69 billion and $3.43 billion. A predominant percentage of the Corporation’s real estate exposure, both commercial and residential, is within Pennsylvania, Delaware and Southern and Central New Jersey. Management is aware of this concentration and mitigates this risk to the extent possible in many ways, including maintaining a diverse group of collateral property types within the portfolio, and by exercising underwriting discipline which includes assessment of the borrower’s capacity to repay, equity in the underlying real estate collateral and a review of a borrower’s global cash flows. For a substantial portion of the loans in the real estate portfolio, the Corporation has recourse to the owners/sponsors, primarily through personal guaranties, in addition to liens on collateral. This recourse provides credit strength, as it incorporates the borrowers’ global cash flows.

In addition to loans secured by real estate, commercial and industrial loans comprise 19.2% of the total loan portfolio as of December 31, 2019.

•

Construction - The construction portfolio of $159.9 million accounts for 4.3% of the total loan and lease portfolio at December 31, 2019, a decrease of $21.2 million from December 31, 2018. The construction loan segment of the portfolio, which consists of residential site development loans, commercial construction loans, and loans for construction of individual homes, had no delinquent or nonperforming loans as of both December 31, 2019 and 2018.

•

Residential Mortgages - Residential mortgage loans were $489.9 million as of December 31, 2019, a decrease of $4.5 million from December 31, 2018. The residential mortgage segment accounts for 13.3% of the total loan and lease portfolio as of December 31, 2019. The residential mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2019, of 0.38%, as compared to 0.52% as of December 31, 2018. Nonperforming residential mortgage loans comprised 0.06% of the residential mortgage segment of the portfolio as of December 31, 2019, as compared to 0.70% as of December 31, 2018. Management believes it is well protected with its collateral position on this portfolio.

•

Commercial Mortgages - Commercial mortgages were $1.91 billion as of December 31, 2019, an increase of $256.0 million from December 31, 2018. Management has made a concerted effort, over several operating cycles, to attract strong commercial real estate entrepreneurs in its primary trade area. The commercial mortgage segment accounts for 51.9% of the total loan and lease portfolio as of December 31, 2019. The commercial mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2019, of 0.13%, as compared to 0.06% as of December 31, 2018. Nonperforming commercial mortgage loans comprised 0.22% of the commercial mortgage segment of the portfolio as of December 31, 2019, as compared to 0.15% as of December 31, 2018. The borrowers comprising this segment of the portfolio generally have strong, global cash flows, which are regularly assessed and have remained stable.

•

Commercial and Industrial - Commercial and industrial loans were $709.3 million as of December 31, 2019, an increase of $13.7 million from December 31, 2018. The commercial and industrial segment accounts for 19.2% of the total loan and lease portfolio as of December 31, 2019. The commercial and industrial segment of the portfolio had a delinquency rate on performing loans, as of both December 31, 2019 and December 31, 2018 of 0.09%. Nonperforming commercial and industrial loans comprised 0.61% of the commercial and industrial segment of the portfolio as of December 31, 2019, as compared to 0.30% as of December 31, 2018. The commercial and industrial segment of the portfolio consists primarily of loans to privately held businesses and non-profit institutions headquartered within the Corporation’s traditional market area. These loans are generally secured by non-real estate business assets, including accounts receivable, inventory and equipment, as the primary source of collateral, and often include commercial real estate as secondary collateral.

•

Home Equity Loans and Lines of Credit - Home equity loans and lines of credit were $194.6 million as of December 31, 2019, a decrease of $12.7 million from December 31, 2018. The home equity loans and lines of credit segment accounts for 5.3% of the total loan and lease portfolio as of December 31, 2019. The home equity loans and lines of credit segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2019, of 0.28%, as compared to 0.05% as of December 31, 2018. Nonperforming home equity loans and lines of credit comprised 0.40% of the home equity loans and lines of credit segment of the portfolio as of December 31, 2019, as compared to 1.74% as of December 31, 2018. The Bank originates the majority of its home equity loans and lines of credit through its retail channel.

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•

Consumer Loans - Consumer loans were $57.1 million as of December 31, 2019, an increase of $10.3 million from December 31, 2018. The consumer loan segment accounted for 1.5% of the total loan and lease portfolio as of December 31, 2019. The consumer loan segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2019, of 0.42%, as compared to 0.09% as of December 31, 2018. Nonperforming consumer loans comprised 0.11% of the consumer loan segment of the portfolio as of December 31, 2019, as compared to 0.23% as of December 31, 2018. Consumer loans consist primarily of small-balance revolving or installment loans originated through the Bank's retail channel.

•

Leasing - Leases totaled $165.1 million as of December 31, 2019, an increase of $20.5 million from December 31, 2018. The lease segment of the portfolio accounted for 4.5% of the total loan and lease portfolio as of December 31, 2019. The lease segment of the portfolio had a delinquency rate on performing leases, as of December 31, 2019, of 0.89%, as compared to 0.77% as of December 31, 2018. Nonperforming leases comprised 0.54% of the leasing segment of the portfolio as of December 31, 2019, as compared to 0.67% as of December 31, 2018.

Goodwill and Intangible Assets

Goodwill of $184.0 million as of December 31, 2019 was unchanged as compared to December 31, 2018.

Intangible assets, other than mortgage servicing rights ("MSRs"), of $19.1 million as of December 31, 2019 decreased $4.3 million, or 18.4%, from $23.5 million as of December 31, 2018. The decrease was primarily due to $3.8 million of amortization. Also contributing to the decrease was the derecognition of $541 thousand of favorable lease assets, with a corresponding adjustment to the operating lease right-of-use asset, in connection with the adoption of FASB ASU 2016-02 (Topic 842), “Leases” in the first quarter of 2019.

For more information regarding goodwill and intangible assets, see Note 1, “Summary of Significant Accounting Policies,” Note 2, “Recent Accounting Pronouncements,” Note 3, “Business Combinations,” and Note 8, “Goodwill and Intangible Assets,” respectively, in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

FHLB Stock

The Corporation’s investment in stock issued by the FHLB was $23.7 million as of December 31, 2019, an increase of $9.2 million, or 63.4%, from $14.5 million as of December 31, 2018. The Corporation must purchase, or the FHLB must redeem, its stock based on the Corporation’s borrowings balance with the FHLB.

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Mortgage Servicing Rights

MSRs of $4.5 million as of December 31, 2019 decreased $597 thousand, or 11.8%, from $5.0 million as of December 31, 2018. The decrease was primarily due to amortization of $576 thousand for the year ended December 31, 2019. There were no mortgage loans sold with servicing retained for the year ended December 31, 2019.

The following table details activity related to mortgage servicing rights for the periods indicated:



	For the Year Ended or as of December 31,
(dollars in thousands)	2019			2018			2017
Mortgage originations	$	173,025		$	162,854		$	190,007
Mortgage loans sold:
Servicing retained	$	—		$	1,850		$	103,439
Servicing released	88,365			86,518			27,871
Total mortgage loans sold	$	88,365		$	88,368		$	131,310
Percentage of originated mortgage loans sold	51.1		%	54.3		%	69.1		%
Servicing retained %	—		%	2.1		%	78.8		%
Servicing released %	100.0		%	97.9		%	21.2		%
Residential mortgage loans serviced for others	$	502,832		$	578,788		$	650,703
Mortgage servicing rights	$	4,450		$	5,047		$	5,861
Gain on sale of mortgage loans	$	1,503		$	2,477		$	2,038
Loan servicing and other fees	$	2,206		$	2,259		$	1,939
Amortization of MSRs	$	576		$	803		$	791
(Impairment) / Recovery of MSRs	$	(21	)	$	(27	)	$	45

Liability Changes

Total liabilities of $4.65 billion as of December 31, 2019 increased $563.3 million, or 13.8%, from $4.09 billion as of December 31, 2018. The increase was primarily due to the increases in total deposits and short-term borrowings discussed in the following sections, as well as $45.3 million of operating lease liabilities as of December 31, 2019 included on the balance sheet as a result of a required accounting pronouncement adopted in the first quarter of 2019.

Deposits

Deposits of $3.84 billion as of December 31, 2019 increased $243.2 million, or 6.8%, from $3.60 billion as of December 31, 2018. Increases of $280.2 million, $243.8 million, and $122.8 million in interest-bearing demand accounts, money market accounts, and wholesale non-maturity deposits, respectively, were offset by decreases of $236.0 million, $137.6 million, $26.6 million, and $3.4 million in wholesale time deposits, retail time deposits, savings accounts, and noninterest bearing deposits, respectively.

The following table details deposits as of the dates indicated:



	As of December 31,
(dollars in thousands)	2019		2018		2017		2016		2015
Interest-bearing demand	$	944,915	$	664,749	$	481,336	$	379,424	$	338,861
Money market	1,106,478		862,644		862,639		761,657		749,726
Savings	220,450		247,081		338,572		232,193		187,299
Retail time deposits	405,123		542,702		532,202		322,912		229,253
Wholesale non-maturity deposits	177,865		55,031		62,276		74,272		67,717
Wholesale time deposits	89,241		325,261		171,929		73,037		53,185
Total interest-bearing deposits	$	2,944,072	$	2,697,468	$	2,448,954	$	1,843,495	$	1,626,041
Noninterest-bearing deposits	898,173		901,619		924,844		736,180		626,684
Total deposits	$	3,842,245	$	3,599,087	$	3,373,798	$	2,579,675	$	2,252,725

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The following table summarizes the maturities of certificates of deposit of $100,000 or greater as of December 31, 2019:



(dollars in thousands)	Retail		Wholesale
Three months or less	$	33,169	$	35,105
Three to six months	20,566		4,629
Six to twelve months	89,693		42,402
Greater than twelve months	78,721		6,034
Total	$	222,149	$	88,170

For more information regarding deposits, including average amount of deposits and average rate paid, refer to the sections of this MD&A under the headings “Balance Sheet Analysis” and “Analysis of Interest Rates and Interest Differential.”

Borrowings

Borrowings of $665.9 million as of December 31, 2019, which include short-term borrowings, long-term FHLB advances, subordinated notes and junior subordinated debentures, increased $238.1 million, or 55.7%, from $427.8 million as of December 31, 2018. The increase was primarily due to a $240.9 million increase in short-term borrowings (original maturity of one year or less), which consisted of funds obtained from overnight repurchase agreements with commercial customers and short-term FHLB advances.

The following table details borrowings as of the dates indicated:



	As of December 31,
(dollars in thousands)	2019		2018		2017		2016		2015
Short-term borrowings	$	493,219	$	252,367	$	237,865	$	204,151	$	94,167
Long-term FHLB advances	52,269		55,374		139,140		189,742		254,863
Subordinated notes	98,705		98,526		98,416		29,532		29,479
Jr. subordinated debentures	21,753		21,580		21,416		—		—
Total borrowings	$	665,946	$	427,847	$	496,837	$	423,425	$	378,509

See the Liquidity Section of this MD&A under the heading “Liquidity” for further details on the Corporation’s FHLB available borrowing capacity.

Discussion of Segments

The Corporation has two operating segments: Wealth Management and Banking. These segments are discussed below. Detailed segment information appears in Note 31, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Wealth Management Segment Activity

The Wealth Management segment, which includes the insurance reporting unit, reported a pre-tax segment profit (“PTSP”) for the year ended December 31, 2019 of $16.4 million, relatively unchanged as compared to $16.5 million for the year ended December 31, 2018. Fees for wealth management services of $44.4 million for the year ended December 31, 2019 increased $2.1 million, or 4.9%, as compared to $42.3 million for the year ended December 31, 2018. The increase in fees was comprised of a $1.7 million increase from accounts whose fees are charged on a flat or fixed basis, primarily due to a $1.91 billion increase in fixed rate flat-fee account balances, and a $328 thousand increase in fees derived from market-value based fee accounts. Revenue from the insurance division of $6.9 million for the year ended December 31, 2019, which is reported as part of the Wealth Management segment, was relatively unchanged as compared to the year ended December 31, 2018. Effective January 1, 2020, the business of Lau Associates LLC, which is reported in the Wealth Management segment, was transitioned into the Wealth Management Division of the Bank, also reported in the Wealth Management segment.

The PTSP of the Wealth Management segment for the year ended December 31, 2018 was $16.5 million, an increase of $1.4 million, or 9.7%, as compared to $15.1 million for the year ended December 31, 2017. Fees for wealth management services of $42.3 million for the year ended December 31, 2018 increased $3.6 million, or 9.3%, as compared to $38.7 million for the year

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ended December 31, 2017. The increase in fees was comprised of a $2.1 million increase from accounts whose fees are charged on a flat or fixed basis, primarily due to a $581.3 million increase in fixed rate flat-fee account balances, and a $1.4 million increase in fees derived from market-value based fee accounts, primarily due to strong market performance experienced during 2018. Revenue from the insurance division of $6.8 million for the year ended December 31, 2018, which is reported as part of the Wealth Management segment, increased by $2.2 million, or 48.4%, partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in addition to organic growth.

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” 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	December 31, 2019		December 31, 2018		December 31, 2017
Market value	$	6,977,009	$	5,764,189	$	5,884,692
Fixed fee	9,571,051		7,665,355		7,084,046
Total	$	16,548,060	$	13,429,544	$	12,968,738



	Percentage of Wealth Assets as of:
Fee Basis	December 31, 2019		December 31, 2018		December 31, 2017
Market value	42.2	%	42.9	%	45.4	%
Fixed fee	57.8	%	57.1	%	54.6	%
Total	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 Year Ended:
Fee Basis	December 31, 2019		December 31, 2018		December 31, 2017
Market value	$	31,470	$	31,142	$	29,752
Fixed fee	12,930		11,184		8,983
Total	$	44,400	$	42,326	$	38,735



	Percentage of Fees for Wealth Management Services For the Year Ended:
Fee Basis	December 31, 2019		December 31, 2018		December 31, 2017
Market value	70.9	%	73.6	%	76.8	%
Fixed fee	29.1	%	26.4	%	23.2	%
Total	100.0	%	100.0	%	100.0	%

Banking Segment Activity

Banking segment data as presented in Note 31, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K indicates a PTSP of $58.4 million in 2019, $61.4 million in 2018 and $42.2 million in 2017. See the section of this MD&A under the heading “Components of Net Income” for a discussion of the Banking Segment results.

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Capital and Regulatory Capital Ratios

Consolidated shareholders’ equity of the Corporation was $612.2 million, or 11.6% of total assets, as of December 31, 2019, as compared to $564.7 million, or 12.1% of total assets, as of December 31, 2018.

In May 2018, BMBC filed a shelf registration statement on Form S-3, SEC File No. 333-224849 (the “Shelf Registration Statement”). The Shelf Registration Statement allows BMBC to raise additional capital from time to time through offers and sales of registered securities consisting of common stock, debt securities, warrants, purchase contracts, rights and units or units consisting of any combination of the foregoing securities. BMBC may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, from time to time, in one or more offerings.

In addition, BMBC 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 BMBC’s common stock and general economic and market conditions.

For the year ended December 31, 2019, BMBC did not issue any shares through the Plan, nor were any RFWs approved. The Plan administrator conducted dividend reinvestments for Plan participants through open market purchases. No other sales of equity securities were executed under the Shelf Registration Statement during the year ended December 31, 2019.

Accumulated other comprehensive income of $2.2 million as of December 31, 2019 increased $9.7 million, or 129.1%, from an accumulated other comprehensive loss of $7.5 million as of December 31, 2018. The primary cause of the increase was the increase in net unrealized losses on available for sale investment securities primarily due to increasing interest rates.

As detailed in Section E, “Regulatory Capital Ratios,” of Note 28, “Regulatory Capital Requirements,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K, the capital ratios, as of December 31, 2019 and 2018 indicate levels above the regulatory minimum to be considered “well capitalized.”

Liquidity

The Corporation has significant sources of liquidity as of December 31, 2019. The liquidity position is managed on a daily basis as part of the daily settlement function, and on a monthly basis as part of the asset liability management process. The Corporation’s primary liquidity is maintained by managing its deposits, along with the utilization of borrowings from the FHLB, purchased federal funds, and utilization of other wholesale funding sources. Secondary sources of liquidity include the sale of certain investment securities and certain loans in the secondary market.

Other wholesale funding sources include deposit from brokers, generally available in blocks of $1.0 million or more. Funds obtained through these programs totaled $213.2 million as of December 31, 2019.

As of December 31, 2019, the maximum borrowing capacity with the FHLB was $1.65 billion, with an unused borrowing availability of $1.11 billion. Borrowing availability at the Federal Reserve Discount Window was $174.3 million, and overnight Fed Funds lines, consisting of lines from seven banks, totaled $79.0 million. On a monthly basis, the ALCO reviews the Corporation’s liquidity needs. This information is reported to the Risk Management Committee of the Board of Directors on a quarterly basis.

As of December 31, 2019, the Corporation held $23.7 million of FHLB stock as required by the borrowing agreement between the FHLB and the Corporation.

The Corporation has an agreement with IND to provide up to $55 million, plus 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 $53.9 million in balances as of December 31, 2019 under this program.

The Corporation’s available for sale investment portfolio of $1.01 billion as of December 31, 2019 was 19.1% of total assets. Some of these investments were in short-term, high-quality, liquid investments to earn more than the 25 basis points currently earned on Fed Funds. The Corporation’s policy is to maintain its investment portfolio at a minimum level of 10% of total assets. The portion of the investment portfolio that is not already pledged against borrowings from the FHLB or other funding

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sources, provides the Corporation with the ability to utilize the securities to borrow additional funds through the FHLB, Federal Reserve or other repurchase agreements.

Management continually evaluates its borrowing capacity and sources of liquidity. Management currently believes that it has sufficient capacity to fund expected short- and long-term earning asset growth with wholesale sources, along with deposit growth from its internal branch and wealth products.

Off Balance Sheet Risk

The Corporation becomes party to financial instruments 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 and create off-balance sheet risk.

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.

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 following chart presents the off-balance sheet commitments of the Corporation as of December 31, 2019, listed by dates of funding or payment:



(dollars in thousands)	Total		Within 1 Year		2 - 3 Years		4 - 5 Years		After 5 Years
Unfunded loan commitments	$	828,872	$	369,214	$	142,813	$	69,333	$	247,512
Standby letters of credit	20,749		17,301		3,065		20		363
Total	$	849,621	$	386,515	$	145,878	$	69,353	$	247,875

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. Collateral requirements for off-balance sheet items are generally based upon the same standards and policies as booked loans. 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 December 31, 2019



(dollars in thousands)	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Deposits without a stated maturity	$	3,347,881	$	3,347,881	$	—	$	—	$	—
Wholesale and retail certificates of deposit	494,364		349,519		134,590		9,461		794
Short-term borrowings	493,219		493,219		—		—		—
Long-term FHLB Advances	52,269		12,363		39,906		—		—
Subordinated Notes	100,000		—		—		—		100,000
Junior subordinated debentures	25,774		—		—		—		25,774
Operating leases	58,815		4,705		8,679		8,123		37,308
Purchase obligations	9,518		6,601		2,917		—		—
Total	$	4,581,840	$	4,214,288	$	186,092	$	17,584	$	163,876

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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.

Effect 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item 7A is incorporated by reference to information appearing in the MD&A Section of this Annual Report on Form 10-K, more specifically in the sections entitled “Interest Rate Sensitivity,” “Summary of Interest Rate Simulation,” and “Gap Analysis.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following audited Consolidated Financial Statements and related documents are set forth in this Annual Report on Form 10-K on the following pages:



	Page
Report of Independent Registered Public Accounting Firm	64
Consolidated Balance Sheets	66
Consolidated Statements of Income	67
Consolidated Statements of Comprehensive Income	68
Consolidated Statements of Cash Flows	69
Consolidated Statements of Changes in Shareholders’ Equity	71
Notes to Consolidated Financial Statements	73

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Bryn Mawr Bank Corporation:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Bryn Mawr Bank Corporation and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for originated loan and lease losses related to loans collectively evaluated for impairment

As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for loan and lease losses related to loans collectively evaluated for impairment (ALLL) was $22.1 million of a total allowance for loans and lease losses of $22.6 million as of December 31, 2019. The Company estimated the ALLL using a historical loss methodology that estimates quantitative factors in the form of historical charge-off rates for performing loans by segment. Such amounts are adjusted for certain qualitative factors.

We identified the assessment of the ALLL as a critical audit matter because it involved significant measurement uncertainty requiring complex auditor judgment, and knowledge and experience in the industry. This assessment encompassed the evaluation of the ALLL methodology, inclusive of the methodologies used to estimate: 1) the historical charge-off rates and their key factors and assumptions, including the loan risk grades for commercial loans, the look-back periods, and the loss emergence periods, and 2) the qualitative factors.

The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the development and approval of the ALLL methodology and determination of the key factors and assumptions used to estimate the historical charge-off rates and qualitative factors. We tested the process to develop the ALLL estimate. Specifically, we tested the sources of data, factors, and assumptions used by considering their relevance and reliability, and considering additional factors and alternative assumptions. We involved credit risk professionals with industry knowledge and experience who assisted in:


–	Evaluating the Company’s ALLL methodology for compliance with U.S. generally accepted accounting principles,


–	Testing the look-back period assumptions used in calculating historical charge-off rates to evaluate the length of that period, and


–	Evaluating the framework for determining qualitative factors and the effect of those factors on the ALLL compared with relevant credit risk metrics such as delinquency, nonperforming balances and charge-offs, and consistency with trends in those metrics.

We tested individual loan risk grades for a selection of commercial loans by involving credit risk professionals to assist in evaluating the loan risk grades. We also tested the loss emergence period assumptions used in calculating the historical charge-off rates by involving credit risk professionals to evaluate the methodology used to develop those assumptions and testing the accuracy of those calculations and inputs.

/s/ KPMG LLP

We have served as the Company’s auditor since 2004.

Philadelphia, Pennsylvania

February 28, 2020

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Consolidated Balance Sheets



(dollars in thousands)	December 31, 2019			December 31, 2018
Assets
Cash and due from banks	$	11,603		$	14,099
Interest bearing deposits with banks	42,328			34,357
Cash and cash equivalents	53,931			48,456
Investment securities available for sale, at fair value (amortized cost of $1,001,034 and $745,328 as of December 31, 2019 and December 31, 2018, respectively)	1,005,984			737,442
Investment securities held to maturity, at amortized cost (fair value of $12,661 and $8,438 as of December 31, 2019 and December 31, 2018, respectively)	12,577			8,684
Investment securities, trading	8,621			7,502
Loans held for sale	4,249			1,749
Portfolio loans and leases, originated	3,320,816			2,885,251
Portfolio loans and leases, acquired	368,497			541,903
Total portfolio loans and leases	3,689,313			3,427,154
Less: Allowance for originated loan and lease losses	(22,526		)	(19,329		)
Less: Allowance for acquired loan and lease losses	(76		)	(97		)
Total allowance for loans and lease losses	(22,602		)	(19,426		)
Net portfolio loans and leases	3,666,711			3,407,728
Premises and equipment, net	64,965			65,648
Operating lease right-of-use assets	40,961			—
Accrued interest receivable	12,482			12,585
Mortgage servicing rights	4,450			5,047
Bank owned life insurance	59,079			57,844
Federal Home Loan Bank stock	23,744			14,530
Goodwill	184,012			184,012
Intangible assets	19,131			23,455
Other investments	16,683			16,526
Other assets	85,679			61,277
Total assets	$	5,263,259		$	4,652,485
Liabilities
Deposits:
Noninterest-bearing	$	898,173		$	901,619
Interest-bearing	2,944,072			2,697,468
Total deposits	3,842,245			3,599,087
Short-term borrowings	493,219			252,367
Long-term FHLB advances	52,269			55,374
Subordinated notes	98,705			98,526
Junior subordinated debentures	21,753			21,580
Operating lease liabilities	45,258			—
Accrued interest payable	6,248			6,652
Other liabilities	91,335			54,195
Total liabilities	4,651,032			4,087,781
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares; issued 24,650,051 and 24,545,348 shares as of December 31, 2019 and December 31, 2018, respectively, and outstanding of 20,126,296 and 20,163,816 as of December 31, 2019 and December 31, 2018, respectively	24,650			24,545
Paid-in capital in excess of par value	378,606			374,010
Less: Common stock in treasury at cost - 4,523,755 and 4,381,532 shares as of December 31, 2019 and December 31, 2018, respectively	(81,174		)	(75,883		)
Accumulated other comprehensive income (loss), net of tax	2,187			(7,513		)
Retained earnings	288,653			250,230
Total Bryn Mawr Bank Corporation shareholders' equity	612,922			565,389
Noncontrolling interest	(695		)	(685		)
Total shareholders' equity	612,227			564,704
Total liabilities and shareholders' equity	$	5,263,259		$	4,652,485

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Consolidated Statements of Income



	Year Ended December 31,
	2019			2018		2017
(dollars in thousands, except share and per share data)
Interest income:
Interest and fees on loans and leases	$	178,367		$	168,638	$	120,762
Interest on cash and cash equivalents	543			264		174
Interest on investment securities:
Taxable	14,330			11,854		8,136
Non-taxable	143			293		388
Dividends	6			6		99
Total interest income	193,389			181,055		129,559
Interest expense:
Interest on deposits	35,936			20,552		8,748
Interest on short-term borrowings	2,792			3,392		1,390
Interest on FHLB advances and other borrowings	1,069			1,777		2,620
Interest on subordinated notes	4,578			4,575		1,628
Interest on junior subordinated debentures	1,373			1,288		46
Total interest expense	45,748			31,584		14,432
Net interest income	147,641			149,471		115,127
Provision for loan and lease losses	8,507			7,193		2,618
Net interest income after provision for loan and lease losses	139,134			142,278		112,509
Noninterest income:
Fees for wealth management services	44,400			42,326		38,735
Insurance commissions	6,877			6,808		4,589
Capital markets revenue	11,276			4,848		2,396
Service charges on deposits	3,374			2,989		2,608
Loan servicing and other fees	2,206			2,259		2,106
Net gain on sale of loans	2,342			3,283		2,441
Net gain on sale of investment securities available for sale	—			7		101
Net (loss) gain on sale of other real estate owned ("OREO")	(84		)	295		(104		)
Dividends on FHLB and FRB stock	1,505			1,621		939
Other operating income	10,288			11,546		5,321
Total noninterest income	82,184			75,982		59,132
Noninterest expenses:
Salaries and wages	74,371			66,671		53,251
Employee benefits	13,456			12,918		10,170
Occupancy and bank premises	12,591			11,599		9,906
Furniture, fixtures, and equipment	9,693			8,407		7,385
Advertising	2,105			1,719		1,454
Amortization of intangible assets	3,801			3,656		2,734
Due diligence, merger-related and merger integration expenses	—			7,761		6,104
Professional fees	5,434			4,203		3,268
Pennsylvania bank shares tax	1,478			1,792		1,294
Data processing	5,517			4,942		3,581
Other operating expenses	18,069			16,635		15,248
Total noninterest expenses	146,515			140,303		114,395
Income before income taxes	74,803			77,957		57,246
Income tax expense	15,607			14,165		34,230
Net income	$	59,196		$	63,792	$	23,016
Net loss attributable to noncontrolling interest	(10		)	—		—
Net income attributable to Bryn Mawr Bank Corporation	$	59,206		$	63,792	$	23,016
Basic earnings per common share	$	2.94		$	3.15	$	1.34
Diluted earnings per common share	$	2.93		$	3.13	$	1.32
Dividends declared per share	$	1.02		$	0.94	$	0.86
Weighted-average basic shares outstanding	20,142,306			20,234,792		17,150,125
Dilutive shares	91,065			155,375		248,798
Adjusted weighted-average diluted shares	20,233,371			20,390,167		17,398,923

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Consolidated Statements of Comprehensive Income



(dollars in thousands)	Year Ended December 31,
	2019			2018			2017
Net income attributable to Bryn Mawr Bank Corporation	$	59,206		$	63,792		$	23,016

Other comprehensive income (loss):
Net change in unrealized gains (losses) on investment securities available for sale:
Net unrealized gains (losses) arising during the period, net of tax expense (benefit) of $2,696, $(806) and $(570), respectively	10,139			(3,033		)	(1,057		)
Reclassification adjustment for net (gain) loss on sale realized in net income, net of tax (expense) benefit of $0, $(1) and $(35), respectively	—			(6		)	(66		)
Reclassification adjustment for net gain realized on transfer of investment securities available for sale to trading, net of tax expense of $0, $(88) and $0, respectively	—			(329		)	—
Unrealized investment losses, net of tax expense (benefit) of $2,696, $(895) and $(605), respectively	10,139			(3,368		)	(1,123		)
Net change in unfunded pension liability:
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax (benefit) expense of $(118), $72 and $(54), respectively	(439		)	269			(100		)
Total other comprehensive income (loss)	9,700			(3,099		)	(1,223		)
Total comprehensive income	$	68,906		$	60,693		$	21,793

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Consolidated Statements of Cash Flows



(dollars in thousands)	Year Ended December 31,
	2019			2018			2017
Operating activities:
Net income attributable to Bryn Mawr Bank Corporation	$	59,206		$	63,792		$	23,016
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	8,507			7,193			2,618
Depreciation of premises and equipment	7,801			6,610			5,551
Amortization of operating lease right-of-use assets	3,647			—			—
Loss on disposal of premises and equipment	69			1,627			—
Net amortization of investment premiums and discounts	2,800			3,044			2,990
Net gain on sale of investment securities available for sale	—			(7		)	(101		)
Net gain on sale of loans	(2,342		)	(3,283		)	(2,441		)
Stock-based compensation	3,725			2,750			2,068
Amortization and net impairment of mortgage servicing rights	597			830			744
Net accretion of fair value adjustments	(6,088		)	(9,883		)	(2,376		)
Amortization of intangible assets	3,801			3,656			2,734
Impairment of other real estate owned ("OREO") and other repossessed assets	—			89			208
Net loss (gain) on sale of OREO	84			(295		)	104
Net increase in cash surrender value of bank owned life insurance ("BOLI")	(1,235		)	(1,177		)	(838		)
Other, net	(475		)	532			(788		)
Loans originated for resale	(90,865		)	(86,323		)	(125,482		)
Proceeds from loans sold	93,459			91,353			132,639
Provision for deferred income taxes	1,539			9,839			20,418
Settlement of pension liability acquired in RBPI Merger	—			—			(15,233		)
Change in income taxes payable/receivable	5,897			415			(7,917		)
Change in accrued interest receivable	103			1,661			(3,178		)
Change in accrued interest payable	(404		)	3,125			(2,023		)
Change in operating lease liabilities	(3,525		)	—			—
Change in other assets	(33,018		)	(19,222		)	(3,471		)
Change in other liabilities	40,098			2,909			3,690
Net cash provided by operating activities	93,381			79,235			32,932
Investing activities:
Purchases of investment securities available for sale	(719,700		)	(338,421		)	(445,294		)
Purchases of investment securities held to maturity	(4,868		)	(1,328		)	(5,189		)
Proceeds from maturity and paydowns of investment securities available for sale	293,987			278,895			283,545
Proceeds from maturity and paydowns of investment securities held to maturity	891			532			108
Proceeds from sale of investment securities available for sale	—			7			130,858
Net change in FHLB stock	(9,214		)	5,553			(2,778		)
Proceeds from calls of investment securities	167,290			810			25,682
Net change in other investments	(157		)	(4,056		)	2,059
Purchase of domain name	—			—			(151		)
Purchase of customer relationships	(18		)	(366		)	—
Purchase of portfolio loans and leases	—			(14,974		)	—
Net portfolio loan and lease originations	(264,822		)	(127,589		)	(180,869		)
Purchases of premises and equipment	(7,187		)	(19,426		)	(8,304		)
Acquisitions, net of cash acquired	—			(380		)	12,301
Proceeds from sale of OREO	418			525			1,048
Net cash used in investing activities	(543,380		)	(220,218		)	(186,984		)
Financing activities:
Change in deposits	243,836			226,598			201,015
Change in short-term borrowings	240,852			14,502			18,714
Dividends paid	(20,685		)	(19,289		)	(14,799		)
Change in long-term FHLB advances and other borrowings	(3,240		)	(83,872		)	(110,049		)
Payment of contingent consideration for business combinations	(875		)	(660		)	(642		)
Net proceeds from issuance of subordinated notes	—			—			68,829
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation	(625		)	(1,639		)	(1,140		)
Net proceeds from sale of (purchase of) treasury stock for deferred compensation plans	(172		)	2			(115		)
Repurchase of warrants from U.S. Treasury	—			(1,755		)	—
Net purchase of treasury stock through publicly announced plans	(4,524		)	(5,936		)	—
Proceeds from exercise of stock options	907			1,464			1,498
Net cash provided by financing activities	455,474			129,415			163,311

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(dollars in thousands)	Year Ended December 31,
	2019		2018			2017
Change in cash and cash equivalents	5,475		(11,568		)	9,259
Cash and cash equivalents at beginning of period	48,456		60,024			50,765
Cash and cash equivalents at end of period	$	53,931	$	48,456		$	60,024
Supplemental cash flow information:
Cash paid during the year for:
Income taxes	$	12,716	$	3,449		$	21,632
Interest	$	46,152	$	28,453		$	13,639
Non-cash information:
Change in other comprehensive income (loss)	$	9,700	$	(3,099	)	$	(1,223	)
Change in deferred tax due to change in comprehensive income	$	2,578	$	(823	)	$	(659	)
Transfer of loans to other real estate owned and repossessed assets	$	72	$	372		$	342
Issuance of shares, warrants and options for acquisitions	$	—	$	—		$	138,509
Acquisition of noncash assets and liabilities:
Assets acquired	$	—	$	1,096		$	849,610
Liabilities assumed	$	—	$	687		$	724,085

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Consolidated Statements of Changes In Shareholders’ Equity

(dollars in thousands, except share and per share data)



	For the Years Ended December 31, 2017, 2018, and 2019
	Shares of Common Stock Issued		Common Stock			Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Noncontrolling Interest			Total Shareholders' Equity
Balance December 31, 2016	21,110,968		$	21,111		$	232,806		$	(66,950	)	$	(2,409	)	$	196,569		$	—		$	381,127
Net income	—		—			—			—			—			23,016			—			23,016
Dividends paid or accrued, $0.86 per share	—		—			—			—			—			(14,818		)	—			(14,818		)
Other comprehensive loss, net of tax benefit of $659	—		—			—			—			(1,223		)	—			—			(1,223		)
Reclassification due to the adoption of ASU No. 2018-02	—		—			—			—			(782		)	782			—			—
Stock-based compensation	—		—			2,068			—			—			—			—			2,068
Form S-4 stock issuance costs	—		—			(233		)	—			—			—			—			(233		)
Retirement of treasury stock	(2,628	)	(3		)	(23		)	26			—			—			—			—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—		—			—			(1,140		)	—			—			—			(1,140		)
Net purchase of treasury stock for deferred compensation trusts	—		—			—			(115		)	—			—			—			(115		)
Stock warrants assumed in acquisitions	—		—			1,854			—			—			—			—			1,854
Noncontrolling interest assumed in acquisitions	—		—			—			—			—			—			(683		)	(683		)
Common stock issued:
Shares issued in acquisitions	3,098,754		3,099			133,556			—			—			—			—			136,655
Common stock issued through share-based awards and options exercises	152,955		153			1,458			—			—			—			—			1,611
Balance December 31, 2017	24,360,049		$	24,360		$	371,486		$	(68,179	)	$	(4,414	)	$	205,549		$	(683	)	$	528,119

Net income attributable to Bryn Mawr Bank Corporation	—		—			—			—			—			63,792			—			63,792
Net income attributable to noncontrolling interest	—		—			—			—			—			—			—			—
Goodwill measurement period adjustment effect on noncontrolling interest	—		—			2			—			—			—			(2		)	—
Dividends paid or accrued, $0.94 per share	—		—			—			—			—			(19,209		)	—			(19,209		)
Other comprehensive loss, net of tax benefit of $823	—		—			—			—			(3,099		)	—			—			(3,099		)
Stock based compensation	—		—			2,750			—			—			—			—			2,750
Retirement of treasury stock	(2,253	)	(2		)	(20		)	22			—			—			—			—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—		—			—			(1,639		)	—			—			—			(1,639		)
Net treasury stock activity for deferred compensation trusts	—		—			153			(151		)	—			—			—			2
Purchase of treasury stock through publicly announced plans	—		—			—			(5,936		)	—			—			—			(5,936		)
Repurchase of warrants from U.S. Treasury	—		—			(1,853		)	—			—			98			—			(1,755		)
Common stock issued:
Common stock issued through share-based awards and options exercises	184,990		184			1,382			—			—			—			—			1,566
Shares issued in acquisitions⁽¹⁾	2,562		3			110			—			—			—			—			113
Balance December 31, 2018	24,545,348		$	24,545		$	374,010		$	(75,883	)	$	(7,513	)	$	250,230		$	(685	)	$	564,704

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	For the Years Ended December 31, 2017, 2018, and 2019
	Shares of Common Stock Issued		Common Stock			Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive (Loss) Income		Retained Earnings			Noncontrolling Interest			Total Shareholders' Equity
Net income attributable to Bryn Mawr Bank Corporation	—		—			—			—			—		59,206			—			59,206
Net loss attributable to noncontrolling interest	—		—			—			—			—		—			(10		)	(10		)
Dividends paid or accrued, $1.02 per share	—		—			—			—			—		(20,783		)	—			(20,783		)
Other comprehensive income, net of tax expense of $2,578	—		—			—			—			9,700		—			—			9,700
Stock based compensation	—		—			3,725			—			—		—			—			3,725
Retirement of treasury stock	(2,704	)	(3		)	(27		)	30			—		—			—			—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—		—			—			(625		)	—		—			—			(625		)
Net treasury stock activity for deferred compensation trusts	—		—			—			(172		)	—		—			—			(172		)
Purchase of treasury stock through publicly announced plans	—		—			—			(4,524		)	—		—			—			(4,524		)
Common stock issued:
Common stock issued through share-based awards and options exercises	107,407		108			898			—			—		—			—			1,006
Balance December 31, 2019	24,650,051		$	24,650		$	378,606		$	(81,174	)	$	2,187	$	288,653		$	(695	)	$	612,227

(1) Shares relating to the RBPI Merger (defined in Note 3, “Business Combinations,” below) recorded in April 2018.

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

A. Nature of Business

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 (“BMBC”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of BMBC. The Bank and BMBC are headquartered in Bryn Mawr, Pennsylvania, located in the western suburbs of Philadelphia. BMBC and its direct and indirect subsidiaries (collectively, the “Corporation”) 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 43 banking locations, seven wealth management offices and two insurance and risk management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in Delaware; and Mercer and Camden Counties in New Jersey. The common stock of BMBC trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993 and headquartered in Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, $225 thousand was paid during the third quarter of 2019, and two contingent cash payments, not to exceed $250 thousand each, will be payable in 2020 and 2021, subject to the attainment of certain targets during the related periods.

On May 24, 2017, the acquisition of Harry R. Hirshorn & Company, Inc. (“Hirshorn”), an insurance agency headquartered in the Chestnut Hill section of Philadelphia, was completed. Immediately after the acquisition, Hirshorn was merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was $7.5 million, of which $5.8 million was paid at closing, two contingent cash payments of $575 thousand were paid in 2018 and 2019, and one contingent cash payment, not to exceed $575 thousand, will be payable in 2020, subject to certain conditions. The acquisition enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted areas.

B. Basis of Presentation and Principles of Consolidation

The accounting policies of the Corporation conform to U.S. generally accepted accounting principles (“GAAP”).

The Consolidated Financial Statements include the accounts of BMBC and its consolidated subsidiaries. BMBC’s primary subsidiary is the Bank. The Corporation’s consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. In connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II. These two entities are not consolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All significant intercompany balances and transactions are eliminated

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in consolidation and certain reclassifications are made when necessary in order to conform the previous years' consolidated financial statements to the current year's presentation.

In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the balance sheets, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in 2019, actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan and lease losses and lending related commitments, goodwill and intangible assets, pension and post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending-related commitments as well as increased pension and post-retirement expense.

C. Cash and Cash Equivalents

Cash and cash equivalents include cash, interest-bearing and noninterest-bearing amounts due from banks, and federal funds sold. Cash balances required to meet regulatory reserve requirements of the Federal Reserve Board amounted to $24.6 million and $4.3 million at December 31, 2019 and December 31, 2018, respectively.

D. Investment Securities

Investment securities which are held for indefinite periods of time, which the Corporation intends to use as part of its asset/liability strategy, or which may be sold in response to changes in credit quality of the issuer, interest rates, changes in prepayment risk, increases in capital requirements, or other similar factors, are classified as available for sale and are carried at fair value. Net unrealized gains and losses for such securities, net of tax, are required to be recognized as a separate component of shareholders’ equity and excluded from determination of net income. Gains or losses on disposition are based on the net proceeds and cost of the securities sold, adjusted for the amortization of premiums and accretion of discounts, using the specific identification method.

The Corporation follows ASC 370-10-65-1 “Recognition and Presentation of Other-Than-Temporary Impairments” that provides guidance related to accounting for recognition of other-than-temporary impairment for debt securities and expands disclosure requirements for other-than-temporarily impaired debt and equity securities. Companies are required to record other-than-temporary impairment charges through earnings if they have the intent to sell, or will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition, companies are required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis. Non-credit-related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as the Corporation has no intent, or it is more likely than not that the Corporation would not be required, to sell an impaired security before a recovery of its amortized cost basis. The Corporation did not have any other-than-temporary impairments for 2019, 2018 or 2017.

Investments for which management has the intent and ability to hold until maturity are classified as held to maturity and are carried at their amortized cost on the balance sheet. No adjustment for market value fluctuations are recorded related to the held to maturity portfolio.

Investment securities held in trading accounts consist of deferred compensation trust accounts, which are 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.

E. Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized temporary losses, if any, are recognized through a valuation allowance by charges to income.

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F. Portfolio Loans and Leases

The Corporation originates construction, commercial and industrial, commercial mortgage, residential mortgage, home equity and consumer loans to customers primarily in southeastern Pennsylvania, as well as small-ticket equipment leases to customers nationwide. Although the Corporation has a diversified loan and lease portfolio, its debtors’ ability to honor their contracts is substantially dependent upon the real estate and general economic conditions of the region.

Loans and leases that management has the intention and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported at their outstanding principal balance adjusted for charge-offs, the allowance for loan and lease losses and any deferred fees or costs on originated loans and leases. Interest income is accrued on the unpaid principal balance.

Loan and lease origination fees and loan and lease origination costs are deferred and recognized as an adjustment to the related yield using the interest method.

The accrual of interest on loans and leases is generally discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Loans and leases are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued, but not collected for loans that are placed on nonaccrual status or charged-off is charged against interest income. All interest accrued, but not collected, on leases that are placed on nonaccrual status is not charged against interest income until the lease becomes 120 days delinquent, at which point it is charged off. The interest received on these nonaccrual loans and leases is applied to reduce the carrying value of loans and leases. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are brought current and remain current for at least six months, and future payments are reasonably assured. Once a loan returns to accrual status, any interest payments collected during the nonaccrual period which had been applied to the principal balance are reversed and recognized as interest income over the remaining term of the loan.

Certain loans which have reached maturity and have been approved for extension or renewal, but for which all required documents have not been fully executed as of the reporting date, are classified as Administratively Delinquent and are not considered to be delinquent. These loans are reported as current in all disclosures.

Loans acquired in mergers are recorded at their fair values. The difference between the recorded fair value and the principal value is accreted to interest income over the contractual lives of the loans in accordance with ASC 310-20. Certain acquired loans which were deemed to be credit impaired at acquisition are accounted for in accordance with ASC 310-30, as discussed below, in subsection H of this footnote.

G. Allowance for Loan and Lease Losses

The allowance for loan and lease losses (the “Allowance”) is established through a provision for loan and lease losses (the “Provision”) charged as an expense. The principal balances of loans and leases are charged against the Allowance when management believes that the principal is uncollectible. The Allowance is maintained at a level that the Corporation believes is sufficient to absorb estimated potential credit losses.

Management’s determination of the adequacy of the Allowance is based on guidance provided in ASC 450 – Contingencies and ASC 310 - Receivables, and involves the periodic evaluations of the loan and lease portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires significant estimates by management. Consideration is given to a variety of factors in establishing these estimates. Quantitative factors in the form of historical net charge-off rates by portfolio segment are considered. In connection with these quantitative factors, management establishes what it deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 2019, management utilized a five-year LBP, which it believes adequately captures the trends in charge-offs. In addition, management develops an estimate of a loss emergence period (“LEP”) for each segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan. As of December 31, 2019, management utilized a two-year LEP for its commercial loan segments, and a one-year LEP for its consumer loan segments, based on analyses of actual charge-offs tracked back in time to the triggering event for the eventual loss. In addition, various qualitative factors are considered, including the specific terms and conditions of loans, changes in underwriting standards, delinquency statistics, industry concentrations and overall exposure of a single customer. In addition, consideration is given to the adequacy of collateral, the dependence on collateral, and the results of internal loan reviews, including a borrower’s financial strengths, their expected cash flows, and their access to additional funds.

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segments, periodic reviews of the individual loans are performed by both in-house staff as well as external third-party loan review specialists. The result of these reviews is reflected in the risk grade assigned to each loan. For the consumer segments of the loan portfolio, the indicator of credit quality is reflected by the performance/non-performance status of a loan.

The evaluation process also considers the impact of competition, current and expected economic conditions, national and international events, the regulatory and legislative environment, and inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, an additional Provision may be required that might adversely affect the Corporation’s results of operations in future periods. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the adequacy of the Allowance. Such agencies may require the Corporation to record additions to the Allowance based on their judgment of information available to them at the time of their examination.

H. Impaired Loans and Leases

A loan or lease is considered impaired when, based on current information, it is probable that management will be unable to collect the contractually scheduled payments of principal or interest. When assessing impairment, management considers various factors, which include payment status, realizable value of collateral and the probability of collecting scheduled principal and interest payments when due. Loans and leases that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

For loans that indicate possible signs of impairment, which in most cases is based on the performance/non-performance status of the loan, an impairment analysis is conducted based on guidance provided by ASC 310-10. Impairment is measured by (i) the fair value of the collateral, if the loan is collateral-dependent, (ii) the present value of expected future cash flows discounted at the loan’s contractual effective interest rate, or (iii), less frequently, the loan’s obtainable market price.

In addition to originating loans, the Corporation occasionally acquires loans through mergers or loan purchase transactions. Some of these acquired loans may exhibit deteriorated credit quality that has occurred since origination and, as such, management may not expect to collect all contractual payments. Accounting for these purchased credit-impaired (“PCI”) loans is done in accordance with ASC 310-30. The loans are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral-dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. On a regular basis, at least quarterly, PCI loans are assessed to determine if there has been any improvement or deterioration of the expected cash flows. If there has been improvement, an adjustment is made to increase the recognition of interest on the PCI loan, as the estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in the expected cash flows of a PCI loan, a Provision is recorded in connection with the loan.

I. Troubled Debt Restructurings (“TDRs")

A TDR occurs when a creditor, for economic or legal reasons related to a borrower’s financial difficulties, modifies the original terms of a loan or lease, or grants a concession to the borrower that it would not otherwise have granted. A concession may include an extension of repayment terms, a reduction in the interest rate, or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a concession, the Corporation will make the necessary disclosures related to the TDR. In certain cases, a modification or concession may be made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not considered a TDR.

J. Other Real Estate Owned (“OREO”)

OREO consists of assets that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that were used as loan collateral. The Corporation reports OREO on the balance sheet as part of other assets, at the lower of cost or fair value less cost to sell, adjusted periodically based on current appraisals. Costs relating to the development or improvement of assets, as well as the costs required to obtain legal title to the property, are capitalized, while costs related to holding the property are charged to expense as incurred.

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K. Other Investments and Equity Stocks Without a Readily Determinable Fair Value

Other investments include Community Reinvestment Act (“CRA”) investments and equity stocks without a readily determinable fair value. The Corporation’s investments in equity stocks include those issued by the Federal Home Loan Bank of Pittsburgh (“FHLB”), the Federal Reserve Bank (“FRB”) and Atlantic Central Bankers Bank. The Corporation is required to hold FHLB stock as a condition of its borrowing funds from the FHLB. As of December 31, 2019, the carrying value of the Corporation’s FHLB stock was $23.7 million. In addition, the Corporation is required to hold FRB stock based on the Corporation’s capital. As of December 31, 2019, the carrying value of the Corporation’s FRB stock was $12.0 million. Ownership of FHLB and FRB stock is restricted and there is no market for these securities. For further information on the FHLB stock, see Note 11, “Short-Term Borrowings and Long-Term FHLB Advances,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

L. Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation and predetermined rent are recorded using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the expected lease term or the estimated useful lives, whichever is shorter.

M. Operating Leases

The Corporation’s operating leases consist of various retail branch locations and corporate offices. Management determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets (“ROU assets”) and operating lease liabilities in our Consolidated Balance Sheets.

ROU assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of unpaid lease payments, including extension options that the Corporation is reasonably certain will be exercised. As the majority of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the lease commencement date to determine the present value of unpaid lease payments. ROU assets represent our right to use underlying assets and are recorded as operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of ROU assets.

The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize ROU assets and lease liabilities for short-term leases, which consist of certain leases of the Corporation’s limited-hour retirement community offices.

N. Pension and Postretirement Benefit Plan

As of December 31, 2019, the Corporation had two non-qualified defined-benefit supplemental executive retirement plans and a postretirement benefit plan as discussed in Note 16, “Pension and Postretirement Benefit Plans,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. Net pension expense related to the defined-benefit consists of service cost, interest cost, return on plan assets, amortization of prior service cost, amortization of transition obligations and amortization of net actuarial gains and losses. As it relates to the costs associated with the post-retirement benefit plan, the costs are recognized as they are incurred.

O. Bank Owned Life Insurance (“BOLI”)

BOLI is recorded at its cash surrender value. Income from BOLI is tax-exempt and included as a component of noninterest income.

P. Derivative Financial Instruments

The Corporation recognizes all derivative financial instruments on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. The Corporation enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Corporation originates variable-rate loans with customers in addition to interest rate swap

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agreements, which serve to effectively swap the customers’ variable-rate loans into fixed-rate loans. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge its exposure on the variable and fixed components of the customer agreements. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820.

In addition to interest rate swaps with customers, the Corporation may also enter into a risk participation agreement with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation may purchase a risk participation agreement from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased.”

If a derivative has qualified as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings immediately. To determine fair value, management uses valuations obtained from a third party which utilizes a pricing model that incorporates assumptions about market conditions and risks that are current as of the reporting date. Management reviews, annually, the inputs utilized by its independent third-party valuation organization.

The Corporation may use interest-rate swap agreements to modify the interest rate characteristics from variable to fixed, or fixed to variable, in order to reduce the impact of interest rate changes on future net interest income. If present, the Corporation accounts for its interest-rate swap contracts in cash flow hedging relationships by establishing and documenting the effectiveness of the instrument in offsetting the change in cash flows of assets or liabilities that are being hedged. To determine effectiveness, the management performs an analysis to identify if changes in fair value or cash flow of the derivative correlate to the equivalent changes in the forecasted interest receipts or payments related to a specified hedged item. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The change in fair value of the ineffective part of the instrument would need to be charged to the Statement of Income, potentially causing material fluctuations in reported earnings in the period of the change relative to comparable periods. In a fair value hedge, the fair value of the interest rate swap agreements and changes in the fair value of the hedged items are recorded in the Corporation’s consolidated balance sheets with the corresponding gain or loss being recognized in current earnings. The difference between changes in the fair values of interest rate swap agreements and the hedged items represents hedge ineffectiveness, and is recorded in net interest income in the statement of income. Management performs an assessment, both at the inception of the hedge and quarterly thereafter, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged items.

Q. Accounting for Stock-Based Compensation

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.

All share-based payments, including grants of stock options, restricted stock awards and performance-based stock awards, are recognized as compensation expense in the statement of income at their fair value. The fair value of stock option grants is determined using the Black-Scholes pricing model which considers the expected life of the options, the volatility of our stock price, risk-free interest rate and annual dividend yield. The fair value of the restricted stock awards and performance-based awards whose performance is measured based on an internally produced metric is based on their closing price on the grant date, while the fair value of the performance-based stock awards which use an external measure, such as total stockholder return, is based on their grant-date market value adjusted for the likelihood of attaining certain pre-determined performance goals and is calculated by utilizing a Monte Carlo Simulation model.

R. 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 that would occur if in-the-money stock options were exercised and converted into shares of common stock and restricted stock awards and performance-based stock awards were vested. Proceeds assumed to have been received on

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options exercises are assumed to be used to purchase shares of BMBC’s common stock at the average market price during the period, as required by the treasury stock method of accounting. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

S. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net deferred tax assets are included within the other assets line item on the Consolidated Balance Sheets.

The Corporation recognizes the benefit of a tax position only after determining that the Corporation would more-likely-than-not sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Consolidated Financial Statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. Management applies these criteria to tax positions for which the statute of limitations remains open.

T. Revenue Recognition

With the exception of nonaccrual loans and leases, the Corporation recognizes all sources of income on the accrual method.

Additional information relating to wealth management fee revenue recognition follows:

The Corporation earns wealth management fee revenue from a variety of sources including fees from trust administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax service fees, shareholder service fees and brokerage. These fees are generally based on asset values and fluctuate with the market. Some revenue is not directly tied to asset value but is based on a flat fee for services provided. For many of our revenue sources, amounts are not received in the same accounting period in which they are earned. However, each source of wealth management fees is recorded on the accrual method of accounting.

The most significant portion of the Corporation’s wealth management fees is derived from trust administration and other related services, custody, investment management and advisory services, and employee benefit account and IRA administration. These fees are generally billed monthly, in arrears, based on the market value of assets at the end of the previous billing period. A smaller number of customers are billed in a similar manner, but on a quarterly or annual basis, and some revenues are not based on market values.

The balance of the Corporation’s wealth management fees includes estate settlement fees and tax service fees, which are recorded when the related service is performed, and asset management and brokerage fees on non-depository investment products, which are received one month in arrears, based on settled transactions, but are accrued in the month the settlement occurs.

Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.

Insurance revenue is primarily related to commissions earned on insurance policies and is recognized over the related policy coverage period.

U. Mortgage Servicing

A portion of the residential mortgage loans originated by the Corporation is sold to third parties; however, the Corporation may retain the servicing rights related to these loans. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received in return for these services. Gains on the sale of these loans are based on the specific identification method.

An intangible asset, referred to as mortgage servicing rights (“MSRs") is recognized when a loan’s servicing rights are retained upon sale of a loan. These MSRs amortize to noninterest expense in proportion to, and over the period of, the estimated future net servicing life of the underlying loans.

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MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is determined by stratifying the MSRs by predominant characteristics, such as interest rate and terms. Fair value is determined based upon discounted cash flows using market-based assumptions. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount for the stratum. A valuation allowance is utilized to record temporary impairment in MSRs. Temporary impairment is defined as impairment that is not deemed permanent. Permanent impairment is recorded as a reduction of the MSR and is not reversed.

V. Goodwill and Intangible Assets

The Corporation accounts for goodwill and intangible assets in accordance with ASC 350, “Intangibles – Goodwill and Other.” The amount of goodwill initially recorded is based on the fair value of the acquired entity at the time of acquisition. Management performs goodwill and intangible assets impairment testing annually, as of October 31, or when events occur or circumstances change that would more likely than not reduce the fair value of the acquisition or investment. Goodwill impairment is tested on a reporting unit level. The Corporation currently has three reporting units: Banking, Wealth Management and Insurance. As of December 31, 2019, the Insurance reporting unit did not meet the quantitative thresholds for separate disclosure as an operating segment, and is therefore reported as a component of the Wealth Management segment, based on its internal reporting structure. While the Insurance reporting unit did not meet the threshold for reporting as a separate operating segment for goodwill testing, the Insurance segment was tested for impairment. An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Management’s impairment testing methodology is consistent with the methodology prescribed in ASC 350. Management completes a goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. Management also reviews other intangible assets with finite lives for impairment if events and circumstances indicate that the carrying value may not be recoverable.

Note 2 - Recent Accounting Pronouncements

The following Financial Accounting Standards Board ("FASB") Accounting Standards Updates ("ASUs") are divided into pronouncements which have been adopted by the Corporation during the year ended December 31, 2019, and those which are not yet effective as of December 31, 2019 and have been evaluated or are currently being evaluated by management.

Adopted Pronouncements in 2019:

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

In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard became effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. Management has elected to use the effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provided a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

This standard will have a material effect on our Consolidated Balance Sheet and related disclosures but is not expected to have a material impact on our Consolidated Statement of Income. Any additional assets recorded as a result of adoption is expected to have a negative impact on the Corporation and Bank capital ratios under current regulatory guidance. On adoption, we have:

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•	recognized operating lease liabilities of approximately $49.1 million, with corresponding ROU assets of the same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases, and


•	derecognized $541 thousand of favorable lease assets, $2.2 million in unfavorable lease liabilities, and $2.5 million in deferred rent, with a corresponding adjustment to the ROU asset for the same amounts.

The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also have elected the practical expedient to not separate lease and non-lease components for all of our leases.

FASB ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”

Issued in June 2018, ASU 2018-07: Compensation - Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment Accounting” expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments in this update became effective for us January 1, 2019. The adoption did not have an impact on our Consolidated Financial Statements and related disclosures as the Corporation has not historically granted share based payment awards to nonemployees other than to the Corporation’s Board of Directors, who are treated as employees for share-based payment accounting.

FASB ASU 2018-15 (Topic 350), "Intangibles - Goodwill and Other - Internal-Use Software"

Issued in August 2018, ASU 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Corporation early adopted ASU 2018-15 in the third quarter of 2019 and the adoption did not have a material impact on our Consolidated Financial Statements and related disclosures as the Corporation has historically evaluated implementation costs for capitalization of cloud computing arrangements using the framework applicable to costs incurred to develop or obtain internal-use software as required by ASU 2018-15.

Pronouncements Not Effective as of December 31, 2019:

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

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CECL became effective for the Corporation on January 1, 2020 and will change the way we estimate credit losses for loans and leases, including off-balance sheet (“OBS”) credit exposures, for reporting periods beginning on or after January 1, 2020.

The Corporation has engaged with a leading vendor to assist in computing and establishing the ACL to operationalize the practice for establishing the ACL. Management’s methodology for estimating the ACL under CECL includes the use of relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience, including examination of loss experience at representative peer institutions when the Corporation’s first-party loss history does not result in estimations that are meaningful to users of the Corporation’s Consolidated Financial Statements, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are considered for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. Ongoing evaluations have been performed by discounting instrument-level cashflows adjusted for timing (e.g. prepayments and curtailments) and credit (default and loss) expectations. For portfolio segments that do not provide adequate loss history (with or without peer information), management expects to use a weighted average remaining maturity methodology, which contemplates loss expectations on a pool basis, relying on historic loss rates.

Management is validating the Corporation's CECL model and methodologies, however we expect an initial increase to the ACL, including reserves for unfunded commitments, not to exceed 130% of the December 31, 2019 Allowance, or an incremental increase to the December 31, 2019 Allowance of approximately $6.8 million. When finalized, this one-time increase as a result of the adoption of CECL will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2020. This estimate is subject to change based on continuing refinement and validation of the model and methodologies.

Financial statement users should be aware that the ACL is, by design, inherently sensitive to changes in economic outlook, loan and lease portfolio composition, portfolio duration, and other factors. Ongoing impacts of the CECL methodology are dependent on the following factors, among others, which could lead to a material impact to the ACL and PCL - in either direction - in future reporting periods:


•	Increases / decreases to the time period management deems reasonably and supportably forecastable


•	Inclusion / exclusion of forecast factors


•	Adverse changes to reasonable and supportable forecasts


•	Detectable increases / decreases in the Corporation’s or comparable industry credit loss parameters


•	Deterioration / improvement in the risk profile of the Corporation’s loan and lease portfolio


•	Decreased / increased prepayment behavior or other factors impacting loan and lease portfolio duration


•	Changes in credit risk through the ordinary course of operations, such as launch or expansion of higher risk-bearing products


•	Interest rate fluctuations impacting effective yield on certain instruments.

Management cautions that this list is not exhaustive. Further, the impact of accounting treatment changes for establishing the ACL for purchased assets under future acquisitions may lead to a material impact to the ACL and PCL in future reporting periods.

Ongoing financial statement behavior will be impacted by the standard, regardless of any cumulative-effect adjustment at adoption. Under our currently contemplated cashflow projection model, assets will originate with a specific allocation for the contract life of that instrument, adjusted for prepayment behavior and probabilistic credit performance expectations to arrive at an expected cashflow projection. All else being equal, as that continues toward its contract maturity, estimates of lifetime credit loss at the instrument level will decrease. Under steady-state conditions, portfolio-segment-level aggregation of management’s expected loss estimates should be stable or track with portfolio-segment growth (contraction and runoff). When management’s expectations of the likely future economic environment change based on reasonable and supportable forecasts, portfolio allocation may increase (decrease) rapidly between periods. The establishment of the ACL will be more responsive to deteriorating (improving) economic conditions than prior establishment of the ALLL, which is based on historical experience and agnostic to future conditions. In dynamic economic environments, users of financial statements should expect expense (income) in the PCL to be concentrated in fewer quarters than was typical for the PLLL. Users of financial statements should

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be aware that this accounting treatment does not determine the ultimate, realized loss or recovery for assets in scope; ASU 2016-13 impacts timing.

Specific reserve impact to instruments meeting the legacy “impairment” criteria are not anticipated to materially change.

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 became effective for the Corporation on January 1, 2020. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2018-12 (Topic 944), “Targeted Improvements to the Accounting for Long-Duration Contracts”

Issued in August 2018, ASU 2018-12 makes targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. Specifically, the ASU is intended to 1) improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows, 2) simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, 3) simplify the amortization of deferred acquisition costs, and 4) improve the effectiveness of the required disclosures. ASU 2018-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application of the amendments is permitted. As an independent insurance agent, the Corporation does not issue insurance contracts. As a result, management does not expect the adoption of this ASU to have an impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2018-13, "Fair Value Measurement Disclosure Framework"

Issued in August 2018, ASU 2018-13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. ASU 2018-13 became effective for the Corporation on January 1, 2020. Adoption is required on both a prospective and retrospective basis depending on the amendment. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2018-14 (Topic 715), "Compensation-Retirement Benefits - Defined Benefit Plans-General"

Issued in August 2018, the ASU 2018-14, modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements to financial statement users. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Use of the retrospective method is required. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management has incorporated recoveries and extension options when estimating expected credit losses under the CECL methodology further described above.

FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”

Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

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Note 3 - Business Combinations

Domenick & Associates (“Domenick”)

The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, $225 thousand was paid during the third quarter of 2019, and two contingent cash payments, not to exceed $250 thousand each, will be payable in 2020 and 2021, subject to the attainment of certain targets during the related periods.

The following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:



(dollars in thousands)
Consideration paid:
Cash paid at closing	$	750
Contingent payment liability (present value)	706
Value of consideration	$	1,456

Assets acquired:
Cash and due from banks	370
Intangible assets - customer relationships	779
Premises and equipment	1
Other assets	316
Total assets	1,466

Liabilities assumed:
Accounts payable	657
Other liabilities	30
Total liabilities	$	687

Net assets acquired	$	779

Goodwill resulting from acquisition of Domenick	$	677

As of June 30, 2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Domenick acquisition were final.

Royal Bancshares of Pennsylvania, Inc.

On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into BMBC (the “Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), pursuant to the Agreement and Plan of Merger, by and between RBPI and BMBC, dated as of January 30, 2017 (the “Agreement”) was completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,101,316 shares of BMBC's common stock. Shareholders of RBPI received 0.1025 shares of BMBC's common stock for each share of RBPI Class A common stock and 0.1179 shares of BMBC's common stock for each share of RBPI Class B common stock owned as of the Effective Date of the RBPI Merger, with cash-in-lieu of fractional shares totaling $7 thousand. Holders of in-the-money options to purchase RBPI Class A common stock received cash totaling $112 thousand. In addition, 1,368,040 warrants to purchase Class A common stock of RBPI, valued at $1.9 million were converted to 140,224 warrants to purchase BMBC's common stock. In accordance with the acquisition method of accounting, assets acquired and liabilities assumed were preliminarily adjusted to their fair values as of the Effective Date. The excess of consideration paid above the fair value of net assets acquired was recorded as goodwill. This goodwill is not amortizable nor is it deductible for income tax purposes.

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In connection with the RBPI Merger, the consideration paid and the estimated fair value of identifiable assets acquired and liabilities assumed as of the Effective Date, which include the effects of any measurement period adjustments in accordance with ASC 805-10, are summarized in the following table:



(dollars in thousands)
Consideration paid:
Common shares issued (3,101,316)	$	136,768
Cash in lieu of fractional shares	7
Cash-out of certain options	112
Fair value of warrants assumed	1,853
Value of consideration	$	138,740

Assets acquired:
Cash and due from banks	17,092
Investment securities available for sale	121,587
Loans	566,228
Premises and equipment	8,264
Deferred income taxes	34,823
Bank-owned life insurance	16,550
Core deposit intangible	4,670
Favorable lease asset	566
Other assets	13,611
Total assets	$	783,391

Liabilities assumed:
Deposits	593,172
FHLB and other long-term borrowings	59,568
Short-term borrowings	15,000
Junior subordinated debentures	21,416
Unfavorable lease liability	322
Other liabilities	31,381
Total liabilities	$	720,859

Net assets acquired	$	62,532

Goodwill resulting from acquisition of RBPI	$	76,208

As of December 31, 2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the RBPI Merger were final.

Harry R. Hirshorn & Company, Inc., d/b/a Hirshorn Boothby (“Hirshorn”)

The acquisition of Hirshorn, an insurance agency headquartered in the Chestnut Hill section of Philadelphia, was completed on May 24, 2017. Immediately after the acquisition, Hirshorn was merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was $7.5 million, of which $5.8 million was paid at closing, two contingent cash payments of $575 thousand were paid in 2018 and 2019, and one contingent cash payment, not to exceed $575 thousand, will be payable in 2020, subject to certain conditions. The acquisition enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted areas.

In connection with the Hirshorn acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:

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(dollars in thousands)
Consideration paid:
Cash paid at closing	$	5,770
Contingent payment liability (present value)	1,690
Value of consideration	7,460

Assets acquired:
Cash operating accounts	978
Intangible assets – trade name	195
Intangible assets – customer relationships	2,672
Intangible assets – non-competition agreements	41
Premises and equipment	1,795
Accounts receivable	192
Other assets	27
Total assets	5,900

Liabilities assumed:
Accounts payable	800
Other liabilities	2
Total liabilities	802

Net assets acquired	5,098

Goodwill resulting from acquisition of Hirshorn	$	2,362

As of December 31, 2017, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Hirshorn acquisition are final.

Pro Forma Income Statements (unaudited)

The following pro forma income statements for the year ended December 31, 2017 present the pro forma results of operations of the combined institution (RBPI and the Corporation) as if the RBPI Merger occurred on January 1, 2017. The pro forma income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization, and include the impacts of measurement period adjustments made in accordance with ASC 805-10. No cost savings or additional merger expenses have been included in the pro forma results of operations. Due to the immaterial contribution to net income of the Domenick and Hirshorn acquisitions, the pro forma effects of these acquisitions are excluded.

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	Year Ended December 31,
(dollars in thousands, except share and per share data)	2017
Total interest income	$	171,155
Total interest expense	20,065
Net interest income	151,090
Provision for loan and lease losses	3,454
Net interest income after provision for loan and lease losses	147,636
Total noninterest income	61,423
Total noninterest expenses⁽¹⁾	140,756
Income before income taxes	68,303
Income tax expense	40,841
Net income	$	27,462
Per share data⁽²⁾:
Weighted-average basic shares outstanding	20,248,879
Dilutive shares	257,591
Adjusted weighted-average diluted shares	20,506,470
Basic earnings per common share	$	1.36
Diluted earnings per common share	$	1.34

(1) Total noninterest expense includes RBPI Net Income Attributable to Noncontrolling Interest and Preferred Stock Series A Accumulated Dividend and Accretion for pro-forma presentation.

(2) Assumes that the shares of RBPI common stock outstanding as of December 31, 2018 were outstanding for the full twelve month period ended December 31, 2017.

Due Diligence, Merger-Related and Merger Integration Expenses

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



	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Advertising	$	—	$	61	$	180
Employee Benefits	—		271		21
Occupancy and bank premises	—		2,145		—
Furniture, fixtures, and equipment	—		365		109
Data processing	—		421		837
Professional fees	—		1,450		3,160
Salaries and wages	—		852		1,285
Other	—		2,196		512
Total due diligence, merger-related and merger integration expenses	$	—	$	7,761	$	6,104

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Note 4 - Investment Securities

The amortized cost and fair value of investments, which were classified as available for sale, are as follows:

As of December 31, 2019



(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	500,066	$	35	$	—		$	500,101
Obligations of the U.S. government and agencies	102,179		193		(352		)	102,020
Obligations of state and political subdivisions	5,366		13		—			5,379
Mortgage-backed securities	360,977		5,182		(157		)	366,002
Collateralized mortgage obligations	31,796		195		(159		)	31,832
Other investment securities	650		—		—			650
Total	$	1,001,034	$	5,618	$	(668	)	$	1,005,984

As of December 31, 2018



(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	200,026	$	—	$	(13	)	$	200,013
Obligations of the U.S. government and agencies	198,604		107		(2,856		)	195,855
Obligations of state and political subdivisions	11,372		3		(43		)	11,332
Mortgage-backed securities	294,076		554		(4,740		)	289,890
Collateralized mortgage obligations	40,150		141		(1,039		)	39,252
Other investment securities	1,100		—		—			1,100
Total	$	745,328	$	805	$	(8,691	)	$	737,442

The following tables present the aggregate amount of gross unrealized losses as of December 31, 2019 and December 31, 2018 on available for sale investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of December 31, 2019



	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	$	48,497	$	(315	)	$	7,966	$	(37	)	$	56,463	$	(352	)
Mortgage-backed securities	33,783		(119		)	5,977		(38		)	39,760		(157		)
Collateralized mortgage obligations	6,978		(67		)	10,861		(92		)	17,839		(159		)
Total	$	89,258	$	(501	)	$	24,804	$	(167	)	$	114,062	$	(668	)

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As of December 31, 2018



	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	$	199,912	$	(13	)	$	—	$	—		$	199,912	$	(13	)
Obligations of the U.S. government and agencies	12,916		(62		)	140,506		(2,794		)	153,422		(2,856		)
Obligations of state and political subdivisions	—		—			3,989		(43		)	3,989		(43		)
Mortgage-backed securities	43,276		(352		)	195,697		(4,388		)	238,973		(4,740		)
Collateralized mortgage obligations	540		(1		)	27,077		(1,038		)	27,617		(1,039		)
Total	$	256,644	$	(428	)	$	367,269	$	(8,263	)	$	623,913	$	(8,691	)

Management evaluates the Corporation’s investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. The 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 investment portfolio are rated as investment-grade or higher. 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 or collateral. Management does not believe that these unrealized losses are other-than-temporary. Management 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 December 31, 2019 and 2018, securities having a fair value of $156.4 million and $123.5 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the FRB discount window program, FHLB borrowings, collateral requirements in derivative contracts, and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

The amortized cost and fair value of available for sale investment and mortgage-related securities available for sale as of December 31, 2019 and December 31, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	December 31, 2019				December 31, 2018
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities:
Due in one year or less	$	504,851	$	504,890	$	209,129	$	209,099
Due after one year through five years	38,710		38,623		180,657		177,972
Due after five years through ten years	53,598		53,457		7,258		7,268
Due after ten years	11,102		11,180		14,058		13,961
Subtotal	608,261		608,150		411,102		408,300
Mortgage-related securities⁽¹⁾	392,773		397,834		334,226		329,142
Total	$	1,001,034	$	1,005,984	$	745,328	$	737,442

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

The Corporation did not have any sales of available for sale investment securities for the year ended December 31, 2019. Proceeds from the sale of available for sale investment securities totaled $7 thousand and $130.9 million for the years ended December 31, 2018 and 2017, respectively. Net gain on sale of available for sale investment securities totaled $7 thousand and $101 thousand for the years ended December 31, 2018, and 2017, respectively.

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The amortized cost and fair value of investment securities held to maturity as of December 31, 2019 and December 31, 2018 are as follows:

As of December 31, 2019



(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities	$	12,577	$	104	$	(20	)	$	12,661

As of December 31, 2018



(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities	$	8,684	$	—	$	(246	)	$	8,438

The following tables present the aggregate amount of gross unrealized losses as of December 31, 2019 and December 31, 2018 on held to maturity securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of December 31, 2019



	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	$	3,159	$	(20	)	$	—	$	—	$	3,159	$	(20	)

As of December 31, 2018



	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	$	1,315	$	(4	)	$	7,123	$	(242	)	$	8,438	$	(246	)

The amortized cost and fair value of held to maturity investment securities as of December 31, 2019 and December 31, 2018, by contractual maturity, are shown below:



	December 31, 2019				December 31, 2018
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Mortgage-backed securities⁽¹⁾	$	12,577	$	12,661	$	8,684	$	8,438

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

As of December 31, 2019 and December 31, 2018, the Corporation’s investment securities held in trading accounts totaled $8.6 million and $7.5 million, respectively, and primarily consist of deferred compensation trust accounts which are invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants and a rabbi trust account established to fund certain unqualified pension obligations. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income. Changes in the fair value of investments held in the deferred compensation trust accounts create corresponding changes in the liability to the deferred compensation plan participants.

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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 December 2017 RBPI Merger, the January 2015 CBH Merger, the November 2012 transaction with First Bank of Delaware and the July 2010 acquisition of First Keystone Financial, Inc. Certain tables in this Note 5 are presented with a breakdown between originated and acquired loans and leases.

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



	December 31, 2019								December 31, 2018
(dollars in thousands)	Originated			Acquired		Total Loans and Leases			Originated		Acquired		Total Loans and Leases
Loans held for sale	$	4,249		$	—	$	4,249		$	1,749	$	—	$	1,749
Real estate loans:
Commercial mortgage	$	1,674,768		$	238,662	$	1,913,430		$	1,327,822	$	329,614	$	1,657,436
Home equity lines and loans	174,804			19,836		194,640			181,506		25,845		207,351
Residential mortgage	424,254			65,649		489,903			411,022		83,333		494,355
Construction	159,867			—		159,867			174,592		6,486		181,078
Total real estate loans	2,433,693			324,147		2,757,840			2,094,942		445,278		2,540,220
Commercial and industrial	675,345			33,912		709,257			624,643		70,941		695,584
Consumer	54,811			2,327		57,138			44,099		2,715		46,814
Leases	156,967			8,111		165,078			121,567		22,969		144,536
Total portfolio loans and leases	3,320,816			368,497		3,689,313			2,885,251		541,903		3,427,154
Total loans and leases	$	3,325,065		$	368,497	$	3,693,562		$	2,887,000	$	541,903	$	3,428,903
Loans with fixed rates	$	1,251,762		$	216,269	$	1,468,031		$	1,204,070	$	323,604	$	1,527,674
Loans with adjustable or floating rates	2,073,303			152,228		2,225,531			1,682,930		218,299		1,901,229
Total loans and leases	$	3,325,065		$	368,497	$	3,693,562		$	2,887,000	$	541,903	$	3,428,903

Net deferred loan origination (costs) fees included in the above loan table	$	(193	)	$	—	$	(193	)	$	2,226	$	—	$	2,226

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



	December 31, 2019									December 31, 2018
(dollars in thousands)	Originated			Acquired			Total Leases			Originated			Acquired			Total Leases
Minimum lease payments receivable	$	174,385		$	8,753		$	183,138		$	135,313		$	25,372		$	160,685
Unearned lease income	(23,641		)	(813		)	(24,454		)	(19,388		)	(3,005		)	(22,393		)
Initial direct costs and deferred fees	6,223			171			6,394			5,642			602			6,244
Total Leases	$	156,967		$	8,111		$	165,078		$	121,567		$	22,969		$	144,536

C. Non-Performing Loans and Leases



	December 31, 2019						December 31, 2018
(dollars in thousands)	Originated		Acquired		Total Loans and Leases		Originated		Acquired		Total Loans and Leases
Commercial mortgage	$	380	$	3,890	$	4,270	$	435	$	2,133	$	2,568
Home equity lines and loans	779		—		779		3,590		26		3,616
Residential mortgage	190		128		318		2,813		639		3,452
Commercial and industrial	3,521		816		4,337		1,786		315		2,101
Consumer	19		42		61		45		63		108
Leases	747		136		883		392		583		975
Total non-performing loans and leases	$	5,636	$	5,012	$	10,648	$	9,061	$	3,759	$	12,820

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D. Purchased Credit-Impaired Loans

The outstanding principal balance and related carrying amount of purchased 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)	December 31, 2019		December 31, 2018
Outstanding principal balance	$	9,798	$	17,904
Carrying amount	$	7,897	$	12,304

The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Corporation applies ASC 310-30, for the year ended December 31, 2019:



(dollars in thousands)	Accretable Discount
Balance, December 31, 2018	$	2,697
Accretion	(1,640		)
Reclassifications from nonaccretable difference	1,471
Additions/adjustments	—
Disposals	(526		)
Balance, December 31, 2019	$	2,002

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
As of December 31, 2019	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
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
Commercial mortgage	$	2,441	$	—	$	—	$	2,441	$	1,906,719	$	1,909,160	$	4,270	$	1,913,430
Home equity lines and loans	182		365		—		547		193,314		193,861		779		194,640
Residential mortgage	1,646		221		—		1,867		487,718		489,585		318		489,903
Construction	—		—		—		—		159,867		159,867		—		159,867
Commercial and industrial	486		167		—		653		704,267		704,920		4,337		709,257
Consumer	98		140		—		238		56,839		57,077		61		57,138
Leases	857		594		—		1,451		162,744		164,195		883		165,078
Total portfolio loans and leases	$	5,710	$	1,487	$	—	$	7,197	$	3,671,468	$	3,678,665	$	10,648	$	3,689,313



	Accruing Loans and Leases
As of December 31, 2018	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current⁽¹⁾		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current⁽¹⁾		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
Commercial mortgage	$	821	$	251	$	—	$	1,072	$	1,653,796	$	1,654,868	$	2,568	$	1,657,436
Home equity lines and loans	92		—		—		92		203,643		203,735		3,616		207,351
Residential mortgage	2,330		218		—		2,548		488,355		490,903		3,452		494,355
Construction	—		—		—		—		181,078		181,078		—		181,078
Commercial and industrial	280		332		—		612		692,871		693,483		2,101		695,584
Consumer	35		5		—		40		46,666		46,706		108		46,814
Leases	641		460		—		1,101		142,460		143,561		975		144,536
Total portfolio loans and leases	$	4,199	$	1,266	$	—	$	5,465	$	3,408,869	$	3,414,334	$	12,820	$	3,427,154

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(1) Included as “current” are $3.2 million of loans and leases as of December 31, 2018, 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
As of December 31, 2019	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
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
Commercial mortgage	$	2,441	$	—	$	—	$	2,441	$	1,671,947	$	1,674,388	$	380	$	1,674,768
Home equity lines and loans	82		365		—		447		173,578		174,025		779		174,804
Residential mortgage	924		102		—		1,026		423,038		424,064		190		424,254
Construction	—		—		—		—		159,867		159,867		—		159,867
Commercial and industrial	460		—		—		460		671,364		671,824		3,521		675,345
Consumer	18		88		—		106		54,686		54,792		19		54,811
Leases	781		566		—		1,347		154,873		156,220		747		156,967
Total originated portfolio loans and leases	$	4,706	$	1,121	$	—	$	5,827	$	3,309,353	$	3,315,180	$	5,636	$	3,320,816



	Accruing Loans and Leases
As of December 31, 2018	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current⁽¹⁾		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current⁽¹⁾		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
Commercial mortgage	$	816	$	251	$	—	$	1,067	$	1,326,320	$	1,327,387	$	435	$	1,327,822
Home equity lines and loans	25		—		—		25		177,891		177,916		3,590		181,506
Residential mortgage	1,545		—		—		1,545		406,664		408,209		2,813		411,022
Construction	—		—		—		—		174,592		174,592		—		174,592
Commercial and industrial	280		332		—		612		622,245		622,857		1,786		624,643
Consumer	35		5		—		40		44,014		44,054		45		44,099
Leases	350		233		—		583		120,592		121,175		392		121,567
Total originated portfolio loans and leases	$	3,051	$	821	$	—	$	3,872	$	2,872,318	$	2,876,190	$	9,061	$	2,885,251

(1) Included as “current” are $2.0 million of loans and leases as of December 31, 2018, 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
As of December 31, 2019	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
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
Commercial mortgage	$	—	$	—	$	—	$	—	$	234,772	$	234,772	$	3,890	$	238,662
Home equity lines and loans	100		—		—		100		19,736		19,836		—		19,836
Residential mortgage	722		119		—		841		64,680		65,521		128		65,649
Construction	—		—		—		—		—		—		—		—
Commercial and industrial	26		167		—		193		32,903		33,096		816		33,912
Consumer	80		52		—		132		2,153		2,285		42		2,327
Leases	76		28		—		104		7,871		7,975		136		8,111
Total acquired portfolio loans and leases	$	1,004	$	366	$	—	$	1,370	$	362,115	$	363,485	$	5,012	$	368,497

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	Accruing Loans and Leases
As of December 31, 2018	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current⁽¹⁾		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current⁽¹⁾		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
Commercial mortgage	$	5	$	—	$	—	$	5	$	327,476	$	327,481	$	2,133	$	329,614
Home equity lines and loans	67		—		—		67		25,752		25,819		26		25,845
Residential mortgage	785		218		—		1,003		81,691		82,694		639		83,333
Construction	—		—		—		—		6,486		6,486		—		6,486
Commercial and industrial	—		—		—		—		70,626		70,626		315		70,941
Consumer	—		—		—		—		2,652		2,652		63		2,715
Leases	291		227		—		518		21,868		22,386		583		22,969
Total acquired portfolio loans and leases	$	1,148	$	445	$	—	$	1,593	$	536,551	$	538,144	$	3,759	$	541,903

(1) Included as “current” are $1.2 million of loans and leases as of December 31, 2018, 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 year ended December 31, 2019 and December 31, 2018:



(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Total
Balance, December 31, 2018	$	7,567		$	1,003		$	1,813		$	1,485		$	5,461		$	229		$	1,868		$	19,426
Charge-offs	(2,332		)	(348		)	(770		)	—			(781		)	(720		)	(2,565		)	(7,516		)
Recoveries	1,087			110			14			4			153			103			714			2,185
Provision for loan and lease losses	4,112			125			481			(492		)	1,196			741			2,344			8,507
Balance, December 31, 2019	$	10,434		$	890		$	1,538		$	997		$	6,029		$	353		$	2,361		$	22,602



(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction		Commercial and Industrial			Consumer			Leases			Total
Balance, December 31, 2017	$	7,550		$	1,086		$	1,926		$	937	$	5,038		$	246		$	742		$	17,525
Charge-offs	(331		)	(333		)	(354		)	—		(1,374		)	(311		)	(3,132		)	(5,835		)
Recoveries	16			2			56			2		24			10			433			543
Provision for loan and lease losses	332			248			185			546		1,773			284			3,825			7,193
Balance, December 31, 2018	$	7,567		$	1,003		$	1,813		$	1,485	$	5,461		$	229		$	1,868		$	19,426

The following tables detail 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 December 31, 2019 and December 31, 2018:



As of December 31, 2019	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	165	$	231	$	—	$	—	$	22	$	64	$	482
Collectively evaluated for impairment	10,434		725		1,307		997		6,029		331		2,297		22,120
Purchased credit-impaired⁽¹⁾	—		—		—		—		—		—		—		—
Total	$	10,434	$	890	$	1,538	$	997	$	6,029	$	353	$	2,361	$	22,602

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As of December 31, 2018	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	162	$	272	$	—	$	—	$	28	$	—	$	462
Collectively evaluated for impairment	7,567		841		1,541		1,485		5,461		201		1,868		18,964
Purchased credit-impaired⁽¹⁾	—		—		—		—		—		—		—		—
Total	$	7,567	$	1,003	$	1,813	$	1,485	$	5,461	$	229	$	1,868	$	19,426

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

The following tables detail 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 December 31, 2019 and December 31, 2018:



As of December 31, 2019	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	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	$	4,454	$	2,328	$	3,040	$	—	$	4,722	$	85	$	1,090	$	15,719
Collectively evaluated for impairment	1,901,602		191,790		486,862		159,867		704,535		57,053		163,988		3,665,697
Purchased credit-impaired⁽¹⁾	7,374		522		1		—		—		—		—		7,897
Total	$	1,913,430	$	194,640	$	489,903	$	159,867	$	709,257	$	57,138	$	165,078	$	3,689,313

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



As of December 31, 2018	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	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	$	7,008	$	4,998	$	6,608	$	—	$	2,629	$	134	$	—	$	21,377
Collectively evaluated for impairment	1,642,117		201,841		487,747		178,673		691,879		46,680		144,536		3,393,473
Purchased credit-impaired⁽¹⁾	8,311		512		—		2,405		1,076		—		—		12,304
Total	$	1,657,436	$	207,351	$	494,355	$	181,078	$	695,584	$	46,814	$	144,536	$	3,427,154

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

The following tables detail 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 December 31, 2019 and December 31, 2018:



As of December 31, 2019	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	165	$	160	$	—	$	—	$	22	$	59	$	406
Collectively evaluated for impairment	10,434		725		1,307		997		6,029		331		2,297		22,120
Total	$	10,434	$	890	$	1,467	$	997	$	6,029	$	353	$	2,356	$	22,526



As of December 31, 2018	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	162	$	175	$	—	$	—	$	28	$	—	$	365
Collectively evaluated for impairment	7,567		841		1,541		1,485		5,461		201		1,868		18,964
Total	$	7,567	$	1,003	$	1,716	$	1,485	$	5,461	$	229	$	1,868	$	19,329

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The following tables detail 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 December 31, 2019 and December 31, 2018:



As of December 31, 2019	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	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	$	564	$	2,328	$	2,354	$	—	$	3,906	$	43	$	884	$	10,079
Collectively evaluated for impairment	1,674,204		172,476		421,900		159,867		671,439		54,768		156,083		3,310,737
Total	$	1,674,768	$	174,804	$	424,254	$	159,867	$	675,345	$	54,811	$	156,967	$	3,320,816



As of December 31, 2018	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	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	$	4,874	$	4,972	$	5,106	$	—	$	2,314	$	71	$	—	$	17,337
Collectively evaluated for impairment	1,322,948		176,534		405,916		174,592		622,329		44,028		121,567		2,867,914
Total	$	1,327,822	$	181,506	$	411,022	$	174,592	$	624,643	$	44,099	$	121,567	$	2,885,251

The following tables detail 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 December 31, 2019 and December 31, 2018:



As of December 31, 2019	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	—	$	71	$	—	$	—	$	—	$	5	$	76
Collectively evaluated for impairment	—		—		—		—		—		—		—		—
Purchased credit-impaired⁽¹⁾	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	71	$	—	$	—	$	—	$	5	$	76

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



As of December 31, 2018	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	—	$	97	$	—	$	—	$	—	$	—	$	97
Collectively evaluated for impairment	—		—		—		—		—		—		—		—
Purchased credit-impaired⁽¹⁾	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	97	$	—	$	—	$	—	$	—	$	97

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

The following tables detail 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 December 31, 2019 and December 31, 2018:



As of December 31, 2019	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	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	$	3,890	$	—	$	686	$	—	$	816	$	42	$	206	$	5,640
Collectively evaluated for impairment	227,398		19,314		64,962		—		33,096		2,285		7,905		354,960
Purchased credit-impaired⁽¹⁾	7,374		522		1		—		—		—		—		7,897
Total	$	238,662	$	19,836	$	65,649	$	—	$	33,912	$	2,327	$	8,111	$	368,497

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

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As of December 31, 2018	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	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	$	2,134	$	26	$	1,502	$	—	$	315	$	63	$	—	$	4,040
Collectively evaluated for impairment	319,169		25,307		81,831		4,081		69,550		2,652		22,969		525,559
Purchased credit-impaired⁽¹⁾	8,311		512		—		2,405		1,076		—		—		12,304
Total	$	329,614	$	25,845	$	83,333	$	6,486	$	70,941	$	2,715	$	22,969	$	541,903

(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. 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.

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 December 31, 2019 and December 31, 2018:



	Credit Risk Profile by Internally Assigned Grade
As of December 31, 2019
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial mortgage	$	1,857,765	$	15,069	$	40,596	$	—	$	1,913,430
Home equity loans and lines	193,861		—		779		—		194,640
Residential	489,431		—		472		—		489,903
Construction	154,071		—		5,796		—		159,867
Commercial and industrial	690,663		4,853		13,741		—		709,257
Consumer	52,505		—		4,633		—		57,138
Leases	164,195		—		883		—		165,078
Total	$	3,602,491	$	19,922	$	66,900	$	—	$	3,689,313

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	Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial mortgage	$	1,635,068	$	631	$	20,639	$	1,098	$	1,657,436
Home equity loans and lines	203,037		—		4,314		—		207,351
Residential	490,789		—		3,566		—		494,355
Construction	171,353		938		8,787		—		181,078
Commercial and industrial	684,444		2,737		8,402		1		695,584
Consumer	46,588		—		226		—		46,814
Leases	143,561		—		975		—		144,536
Total	$	3,374,840	$	4,306	$	46,909	$	1,099	$	3,427,154

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 December 31, 2019 and December 31, 2018:



	Credit Risk Profile by Internally Assigned Grade
As of December 31, 2019
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial mortgage	$	1,636,961	$	10,142	$	27,665	$	—	$	1,674,768
Home equity loans and lines	174,025		—		779		—		174,804
Residential	423,910		—		344		—		424,254
Construction	154,071		—		5,796		—		159,867
Commercial and industrial	657,740		4,853		12,752		—		675,345
Consumer	50,220		—		4,591		—		54,811
Leases	156,219		—		748		—		156,967
Total	$	3,253,146	$	14,995	$	52,675	$	—	$	3,320,816



	Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial mortgage	$	1,321,973	$	631	$	5,218	$	—	$	1,327,822
Home equity loans and lines	177,916		—		3,590		—		181,506
Residential	408,095		—		2,927		—		411,022
Construction	167,272		938		6,382		—		174,592
Commercial and industrial	615,817		2,511		6,314		1		624,643
Consumer	43,936		—		163		—		44,099
Leases	121,175		—		392		—		121,567
Total	$	2,856,184	$	4,080	$	24,986	$	1	$	2,885,251

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 December 31, 2019 and December 31, 2018:

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	Credit Risk Profile by Internally Assigned Grade
As of December 31, 2019
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial mortgage	$	220,804	$	4,927	$	12,931	$	—	$	238,662
Home equity loans and lines	19,836		—		—		—		19,836
Residential	65,521		—		128		—		65,649
Construction	—		—		—		—		—
Commercial and industrial	32,923		—		989		—		33,912
Consumer	2,285		—		42		—		2,327
Leases	7,976		—		135		—		8,111
Total	$	349,345	$	4,927	$	14,225	$	—	$	368,497



	Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial mortgage	$	313,095	$	—	$	15,421	$	1,098	$	329,614
Home equity loans and lines	25,121		—		724		—		25,845
Residential	82,694		—		639		—		83,333
Construction	4,081		—		2,405		—		6,486
Commercial and industrial	68,627		226		2,088		—		70,941
Consumer	2,652		—		63		—		2,715
Leases	22,386		—		583		—		22,969
Total	$	518,656	$	226	$	21,923	$	1,098	$	541,903

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)	December 31, 2019		December 31, 2018
TDRs included in nonperforming loans and leases	$	3,018	$	1,217
TDRs in compliance with modified terms	5,071		9,745
Total TDRs	$	8,089	$	10,962

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The following table presents information regarding loans and leases categorized as TDRs for modifications made during the year ended December 31, 2019:



	For the Year Ended December 31, 2019
(dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial mortgage	1	$	184	$	184
Home equity lines and loans	3	226		226
Commercial and industrial	4	2,649		2,649
Leases	4	200		200
Total	12	$	3,259	$	3,259

The following table presents information regarding the types of loan and lease modifications made for the year ended December 31, 2019:



	Number of Contracts
	Loan Term Extension	Interest Rate Change and Term Extension	Interest Rate Change and/or Interest-Only Period	Contractual Payment Reduction (Leases only)	Temporary Payment Deferral
Commercial mortgage	1	—	—	—	—
Home equity lines and loans	—	3	—	—	—
Commercial and industrial	2	—	2	—	—
Leases	—	—	—	4	—
Total	3	3	2	4	—

The following table presents information regarding loans and leases categorized as TDRs for modifications made during the year ended December 31, 2018:



	For the Year Ended December 31, 2018
(dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial mortgage	1	$	4,439	$	4,439
Home equity lines and loans	3	961		961
Residential	6	620		640
Commercial and industrial	2	156		156
Consumer	1	20		20
Leases	4	173		173
Total	17	6,369		6,389

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The following table presents information regarding the types of loan and lease modifications made for the year ended December 31, 2018:



	Number of Contracts
	Loan Term Extension	Interest Rate Change and Term Extension	Interest Rate Change and/or Interest-Only Period	Contractual Payment Reduction (Leases only)	Temporary Payment Deferral
Commercial mortgage	1	—	—	—	—
Home equity lines and loans	—	3	—	—	—
Residential	2	1	—	—	3
Commercial and industrial	1	1	—	—	—
Consumer	—	—	—	—	1
Leases	—	—	—	4	—
Total	4	5	—	4	4

During the year ended December 31, 2019, two commercial and industrial loans with principal balances totaling $300 thousand, which had been previously modified to troubled debt restructuring, defaulted and were charged off.

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 for the year ended December 31, 2019, 2018 and 2017 (purchased credit-impaired loans are not included in the tables):



As of or for the Year Ended December 31, 2019	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
Impaired loans with related allowance:
Home equity lines and loans	$	1,307	$	1,307	$	165	$	1,311	$	44	$	—
Residential mortgage	1,845		1,845		231		1,863		87		—
Consumer	43		43		22		44		2		—
Total	$	3,195	$	3,195	$	418	$	3,218	$	133	$	—
Impaired loans without related allowance⁽¹⁾:
Commercial mortgage	$	4,454	$	5,591	$	—	$	5,826	$	98	$	—
Home equity lines and loans	1,020		1,021		—		1,034		29		—
Residential mortgage	1,196		1,196		—		1,218		61		—
Commercial and industrial	4,722		4,996		—		4,835		119		—
Consumer	42		57		—		45		—		—
Total	$	11,434	$	12,861	$	—	$	12,958	$	307	$	—
Grand total	$	14,629	$	16,056	$	418	$	16,176	$	440	$	—

(1) The table above does not include the recorded investment of $1.1 million of impaired leases with a $64 thousand related allowance for loan and lease losses.

(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

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As of or for the Year Ended December 31, 2018	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
Impaired loans with related allowance:
Home equity lines and loans	$	1,280	$	1,280	$	162	$	640	$	27	$	—
Residential mortgage	1,966		1,966		272		1,983		94		—
Consumer	50		50		28		56		4		—
Total	$	3,296	$	3,296	$	462	$	2,679	$	125	$	—
Impaired loans without related allowance⁽¹⁾:
Commercial mortgage	$	7,007	$	7,264	$	—	$	7,010	$	320	$	—
Home equity lines and loans	3,718		3,724		—		3,537		67		—
Residential mortgage	4,641		4,728		—		4,750		133		—
Commercial and industrial	2,629		3,803		—		3,349		126		—
Consumer	83		86		—		100		3		—
Total	$	18,078	$	19,605	$	—	$	18,746	$	649	$	—
Grand total	$	21,374	$	22,901	$	462	$	21,425	$	774	$	—

(1) The table above does not include the recorded investment of $1.2 million of impaired leases without a related allowance for loan and lease losses.



As of or for the Year Ended December 31, 2017	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
Impaired loans with related allowance:
Home equity lines and loans	$	577	$	577	$	19	$	232	$	7	$	—
Residential mortgage	$	2,436	$	2,436	$	230	$	2,467	$	127	$	—
Commercial and industrial	18		18		5		19		1		—
Consumer	27		27		4		28		1		—
Total	$	3,058	$	3,058	$	258	$	2,746	$	136	$	—
Impaired loans without related allowance⁽¹⁾:
Commercial mortgage	$	2,128	$	2,218	$	—	$	2,205	$	85	$	—
Home equity lines and loans	1,585		1,645		—		1,636		38		—
Residential mortgage	5,290		5,529		—		4,994		191		—
Commercial and industrial	1,879		3,613				2,079		35		—
Total	$	10,882	$	13,005	$	—	$	10,914	$	349	$	—
Grand total	$	13,940	$	16,063	$	258	$	13,660	$	485	$	—

(1) The table above does not include the recorded investment of $272 thousand of impaired leases without a related allowance for loan and lease losses.

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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, for which the Loan Mark is accounted 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:



	As of December 31, 2019
(dollars in thousands)	Outstanding Principal		Remaining Loan Mark			Recorded Investment
Commercial mortgage	$	244,364	$	(5,702	)	$	238,662
Home equity lines and loans	21,739		(1,903		)	19,836
Residential mortgage	67,831		(2,182		)	65,649
Commercial and industrial	34,780		(868		)	33,912
Consumer	2,416		(89		)	2,327
Leases	8,272		(161		)	8,111
Total	$	379,402	$	(10,905	)	$	368,497



	As of December 31, 2018
(dollars in thousands)	Outstanding Principal		Remaining Loan Mark			Recorded Investment
Commercial mortgage	$	339,241	$	(9,627	)	$	329,614
Home equity lines and loans	28,212		(2,367		)	25,845
Residential mortgage	86,111		(2,778		)	83,333
Construction	6,780		(294		)	6,486
Commercial and industrial	72,948		(2,007		)	70,941
Consumer	2,828		(113		)	2,715
Leases	23,695		(726		)	22,969
Total	$	559,815	$	(17,912	)	$	541,903

Note 6 - Premises and Equipment

A summary of premises and equipment is as follows:



	December 31,
(dollars in thousands)	2019			2018
Land	$	11,219		$	11,219
Buildings	45,321			40,947
Furniture and equipment	48,311			44,862
Leasehold improvements	26,951			25,186
Construction in progress	1,389			4,400
Less: accumulated depreciation	(68,226		)	(60,966		)
Total	$	64,965		$	65,648

Depreciation and amortization expense related to the assets detailed in the above table for the years ended December 31, 2019, 2018, and 2017 amounted to $7.8 million, $6.6 million, and $5.7 million, respectively.

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Note 7 - Mortgage Servicing Rights

The following summarizes the Corporation’s activity related to MSRs for the years ended December 31:



(dollars in thousands)	2019			2018			2017
Balance, January 1	$	5,047		$	5,861		$	5,582
Additions	—			16			1,025
Amortization	(576		)	(803		)	(791		)
(Impairment) / Recovery	(21		)	(27		)	45
Balance, December 31	$	4,450		$	5,047		$	5,861
Fair value	$	4,838		$	6,277		$	6,397
Residential mortgage loans serviced for others	$	502,832		$	578,788		$	650,703

The following summarizes the Corporation’s activity related to changes in the impairment valuation allowance of MSRs for the years ended December 31:



(dollars in thousands)	2019			2018			2017
Balance, January 1	$	(1,787	)	$	(1,760	)	$	(1,805	)
Impairment	(70		)	(103		)	(52		)
Recovery	49			76			97
Balance, December 31	$	(1,808	)	$	(1,787	)	$	(1,760	)

As of December 31, 2019 and 2018, 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:



	December 31,
(dollars in thousands)	2019			2018
Fair value amount of MSRs	$	4,838		$	6,277
Weighted average life (in years)	6.0			6.7
Prepayment speeds (constant prepayment rate)⁽¹⁾	10.5		%	9.1		%
Impact on fair value:
10% adverse change	$	(149	)	$	(124	)
20% adverse change	$	(297	)	$	(257	)
Discount rate	9.55		%	9.55		%
Impact on fair value:
10% adverse change	$	(166	)	$	(234	)
20% adverse change	$	(321	)	$	(451	)

(1) Represents the weighted average prepayment rate for the life of the MSR asset.

At December 31, 2019 and 2018, the fair value of the MSRs was $4.8 million and $6.3 million, respectively. The fair value of the MSRs for these dates was determined using values obtained from a third party which utilizes a valuation model which 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. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process utilized by its independent third-party valuation experts.

These assumptions and sensitivities are hypothetical and should be used with caution. As the figures indicate, 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 8 - Goodwill and Intangible Assets

The following table presents activity in the Corporation's goodwill by its reporting units and finite-lived and indefinite-lived intangible assets, other than MSRs, for the years ended December 31, 2019 and 2018:



(dollars in thousands)	Balance December 31, 2018		Additions		Adjustments			Amortization			Balance December 31, 2019		Amortization Period
Goodwill – Wealth	$	20,412	$	—	$	—		$	—		$	20,412	Indefinite
Goodwill – Banking	156,991		—		—			—			156,991		Indefinite
Goodwill – Insurance	6,609		—		—			—			6,609		Indefinite
Total Goodwill	$	184,012	$	—	$	—		$	—		$	184,012
Core deposit intangible	5,906		—		—			(1,308		)	4,598		10 years
Customer relationships	13,607		18		—			(1,805		)	11,820		10 to 20 years
Non-compete agreements	1,101		—		—			(190		)	911		5 to 10 years
Trade names	2,149		—		—			(498		)	1,651		3 to 5 years
Domain name	151		—		—			—			151		Indefinite
Favorable lease assets	541		—		(541		)	—			—
Total Intangible Assets	$	23,455	$	18	$	(541	)	$	(3,801	)	$	19,131
Grand Total	$	207,467	$	18	$	(541	)	$	(3,801	)	$	203,143



(dollars in thousands)	Balance December 31, 2017		Additions		Adjustments		Amortization			Balance December 31, 2018		Amortization Period
Goodwill – Wealth	$	20,412	$	—	$	—	$	—		$	20,412	Indefinite
Goodwill – Banking	153,545		—		3,446		—			156,991		Indefinite
Goodwill – Insurance	5,932		677		—		—			6,609		Indefinite
Total Goodwill	$	179,889	$	677	$	3,446	$	—		$	184,012
Core deposit intangible	7,380		—		—		(1,474		)	5,906		10 years
Customer relationships	14,173		1,145		—		(1,711		)	13,607		10 to 20 years
Non-compete agreements	1,319		—		—		(218		)	1,101		5 to 10 years
Trade names	2,322		—		—		(173		)	2,149		3 to 5 years
Domain name	151		—		—		—			151		Indefinite
Favorable lease assets	621		—		—		(80		)	541		1 to 16 years
Total Intangible Assets	$	25,966	$	1,145	$	—	$	(3,656	)	$	23,455
Grand total	$	205,855	$	1,822	$	3,446	$	(3,656	)	$	207,467

Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31, 2019 using generally accepted valuation methods. Management determined that no impairment of goodwill or indefinite-lived intangible assets was identified as a result of the annual impairment analyses. Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that would suggest possible impairment, in which case it would be tested as of the date of the triggering event. For the two months ended December 31, 2019, management determined there were no events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets.

Amortization expense on finite-lived intangible assets was $3.8 million, $3.7 million, and $2.7 million for the years ended December 31, 2019, 2018, and 2017, respectively. As of October 1, 2018, due to changes in branding strategies, the estimate of the remaining useful lives of certain trade name intangible assets were changed from indefinite to five years. The effect of this change in estimate increased amortization of intangible asset expense by $433 thousand and $108 thousand for the years ended December 31 2019 and 2018.

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The estimated aggregate amortization expense related to finite-lived intangible assets for each of the five succeeding fiscal years ending December 31 is:



(dollars in thousands)	Fiscal Year Amount
Fiscal year ending
2020	$	3,578
2021	3,367
2022	3,027
2023	2,646
Thereafter	6,361

Note 9 - Other Real Estate Owned

The summary of the change in other real estate owned, which is included as a component of other assets on the Corporation's Consolidated Balance Sheets, is as follows:



	December 31,
(dollars in thousands)	2019			2018
Balance January 1	$	417		$	304
Additions	87			372
Impairments	—			(89		)
Sales	(504		)	(170		)
Balance December 31	$	—		$	417

As of December 31, 2019, the Corporation did not have any OREO. As of December 31, 2018, the balance of OREO was comprised of one residential property and two manufactured homes, which resulted from loan foreclosures.

Note 10 - Deposits

A. The following table details the components of deposits:



	As of December 31,
(dollars in thousands)	2019		2018
Interest-bearing demand	$	944,915	$	664,749
Money market	1,106,478		862,644
Savings	220,450		247,081
Retail time deposits	405,123		542,702
Wholesale non-maturity deposits	177,865		55,031
Wholesale time deposits	89,241		325,261
Total interest-bearing deposits	$	2,944,072	$	2,697,468
Noninterest-bearing deposits	898,173		901,619
Total deposits	$	3,842,245	$	3,599,087

The aggregate amount of deposit and mortgage escrow overdrafts included as loans were $529 thousand and $408 thousand as of December 31, 2019 and 2018, respectively.

The aggregate amount of time deposits in denominations over $250 thousand were $130.1 million and $324.4 million as of December 31, 2019 and 2018, respectively.

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B. The following tables detail the maturities of retail time deposits:



	As of December 31, 2019
(dollars in thousands)	Less than $100		$100 or more
Maturing during:
2020	$	122,981	$	143,428
2021	43,210		60,192
2022	10,300		14,758
2023	2,838		1,844
2024 and thereafter	3,645		1,927
Total	$	182,974	$	222,149

C. The following tables detail the maturities of wholesale time deposits:



	As of December 31, 2019
(dollars in thousands)	Less than $100		$100 or more
Maturing during:
2020	$	974	$	82,136
2021	97		388
2022	—		5,646
Total	$	1,071	$	88,170

Note 11 - Short-Term Borrowings and Long-Term FHLB Advances

A. Short-term borrowings

The Corporation’s short-term borrowings (original maturity of one year or less), which consist of 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:



	As of December 31,
(dollars in thousands)	2019		2018
Repurchase agreements⁽¹⁾ – commercial customers	$	10,819	$	22,717
Short-term FHLB advances	482,400		229,650
Total short-term borrowings	$	493,219	$	252,367

(1) Overnight repurchase agreements with no expiration date.

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



	As for the Year Ended December 31,
(dollars in thousands)	2019			2018
Balance at period-end	$	493,219		$	252,367
Maximum amount outstanding at any month end	$	493,219		$	302,932
Average balance outstanding during the period	$	129,545		$	186,290
Weighted-average interest rate:
As of the period-end	1.82		%	2.23		%
Paid during the period	2.07		%	1.90		%

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Average balances outstanding during the year represent daily average balances and average interest rates represent interest expense divided by the related average balance.

B. Long-term FHLB Advances

The following table presents the remaining periods until maturity of long-term FHLB advances (original maturities exceeding one year):



	As of December 31,
(dollars in thousands)	2019		2018
Within one year	$	12,363	$	28,105
Over one year through five years	39,906		27,269
Total	$	52,269	$	55,374

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



(dollars in thousands)	Maturity Range⁽¹⁾		Weighted Average Rate⁽¹⁾		Coupon Rate⁽¹⁾				Balance at December 31,
Description	From	To	Weighted Average Rate⁽¹⁾		From		To		2019		2018
Bullet maturity – fixed rate	1/2/2020	11/12/2021	1.58	%	1.40	%	2.13	%	$	52,269	$	55,374
Convertible-fixed⁽²⁾	N/A	N/A	N/A		N/A		N/A		—		—
Total									$	52,269	$	55,374

(1) Maturity range, weighted average rate and coupon rate range refers to December 31, 2019 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 December 31, 2019, substantially all FHLB advances with this convertible feature are subject to conversion in fiscal 2018. 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

In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of capital stock held was $23.7 million at December 31, 2019, and $14.5 million at December 31, 2018. The carrying amount of the FHLB stock approximates its redemption value.

The level of required investment in FHLB stock is based on the balance of outstanding loans the Corporation has from the FHLB. Although FHLB stock is a financial instrument that represents an equity interest in the FHLB, it does not have a readily determinable fair value. FHLB stock is generally viewed as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, its value should be determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

The Corporation had a maximum borrowing capacity with the FHLB of $1.65 billion as of December 31, 2019 of which the unused capacity was $1.11 billion. In addition, there were $79.0 million in the overnight federal funds line available and $174.3 million of Federal Reserve Discount Window capacity.

Note 12 – Subordinated Notes

On December 13, 2017, BMBC completed the issuance of $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027 (the "2027 Notes") in an underwritten public offering. On August 6, 2015, BMBC completed the issuance of $30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the "2025 Notes") in a private placement transaction to institutional accredited investors. The net proceeds of both offerings increased Tier II regulatory capital at the BMBC level.

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The following tables detail the subordinated notes, including debt issuance costs, as of December 31, 2019 and 2018:



	December 31, 2019				December 31, 2018
(dollars in thousands)	Balance		Rate⁽¹⁾⁽²⁾		Balance		Rate⁽¹⁾⁽²⁾
Subordinated notes – due 2027	$	69,009	4.25	%	$	68,885	4.25	%
Subordinated notes – due 2025	29,696		4.75	%	29,641		4.75	%
Total subordinated notes	$	98,705			$	98,526

(1) The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until December 14, 2022, and will thereafter bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 2.050% until December 15, 2027, or any early redemption date.

(2) The 2025 Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until August 14, 2020, and will thereafter bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 3.068% until August 15, 2025, or any early redemption date.

Note 13 – Junior Subordinated Debentures

In connection with the RBPI Merger, the Corporation acquired Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although BMBC owns $774 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Corporation’s consolidated financial statements as the Corporation is not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, RBPI issued, and BMBC assumed as a result of the RBPI Merger, junior subordinated debentures to the Trusts of $10.7 million each, totaling $21.4 million representing BMBC’s maximum exposure to loss. The junior subordinated debentures incur interest at a coupon rate of 4.04% as of December 31, 2019. The rate resets quarterly based on 3-month LIBOR plus 2.15%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities initially bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to BMBC. As a result of the RBPI Merger, BMBC has fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

The rights of holders of common securities of the Trusts are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities. The capital and common securities of the Trusts are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier dissolved, the Trusts will dissolve on December 15, 2034. The junior subordinated debentures are the sole assets of Trusts, mature on December 15, 2034, and may be called at par by BMBC any time after December 15, 2009. The Corporation records its investments in the Trusts’ common securities of $387 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.

Note 14 – Operating Leases

On January 1, 2019, the Corporation adopted ASU 2016-02 (Topic 842), “Leases”, as further explained in Note 2, Recent Accounting Pronouncements.

The Corporation’s operating leases consist of various retail branch locations and corporate offices. As of December 31, 2019, the Corporation’s leases have remaining lease terms ranging from nine months to 23 years, including extension options that the Corporation is reasonably certain will be exercised.

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As of December 31, 2019 the Corporation’s ROU assets and related lease liabilities were $41.0 and $45.3, respectively.

The components of lease expense were as follows:



	Year Ended December 31, 2019
(dollars in thousands)
Operating lease expense	$	5,295
Short term lease expense	59
Variable lease expense	1,795
Sublease income	(32		)
Total lease expense	$	7,117

Supplemental cash flow information related to leases was as follows:



	Year Ended December 31, 2019
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,174
ROU assets obtained in exchange for lease liabilities	44,609

Maturities of operating lease liabilities under FASB ASC 842 “Leases” as of December 31, 2019 are as follows:



	December 31, 2019
(dollars in thousands)
2019	$	4,705
2020	4,479
2021	4,200
2022	4,047
2023	4,076
2024 and thereafter	37,308
Total lease payments	58,815
Less: imputed interest	13,557
Present value of operating lease liabilities	$	45,258

As of December 31, 2019, the weighted-average remaining lease term, including extension options that the Corporation is reasonably certain will be exercised, for all operating leases is 14.26 years.

Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of December 31, 2019 is 3.57%.

As of December 31, 2019, the Corporation had not entered into any material leases that have not yet commenced.

Note 15 - Derivatives and Hedging Activities

Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Management manages these risks as part of its asset and liability management process and through credit policies and procedures. Management seeks to minimize counterparty credit risk by establishing credit limits and collateral agreements and utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The derivative transactions entered into by the Corporation are an economic hedge of a derivative offerings to Bank customers. The Corporation does not use derivative financial instruments for trading purposes.

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Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps with commercial loan customers and correspondent banks wishing to manage interest rate risk. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge the exposure arising from these contracts. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of December 31, 2019, there were no fair value adjustments related to credit quality.

Foreign Exchange Forward Contracts. The Corporation enters into foreign exchange forward contracts (“FX forwards”) with customers to exchange one currency for another on an agreed date in the future at an agreed exchange rate. The Corporation then enters into corresponding FX forwards with swap dealer counterparties to economically hedge its exposure on the exchange rate component of the customer agreements. The FX forwards with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. As the FX forwards are structured to offset each other, changes to the underlying term structure of currency exchange rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of December 31, 2019, there were no fair value adjustments related to credit quality.

Risk Participation Agreements. The Corporation may enter into a risk participation agreement (“RPA”) with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation may purchase an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased.”

The following tables detail the derivative instruments as of December 31, 2019 and December 31, 2018:



	Asset Derivatives				Liability Derivatives
(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives not designated as hedging instruments
As of December 31, 2019:
Customer derivatives – interest rate swaps	$	790,209	$	47,627	$	790,209	$	47,627
RPAs sold	—		—		4,232		16
RPAs purchased	20,249		90		—		—
Total derivatives	$	810,458	$	47,717	$	794,441	$	47,643

As of December 31, 2018:
Customer derivatives – interest rate swaps	$	369,623	$	12,550	$	369,623	$	12,549
RPAs sold	—		—		854		2
RPAs purchased	35,305		71		—		—
Total derivatives	$	404,928	$	12,621	$	370,477	$	12,551

The Corporation has International Swaps and Derivatives Association agreements with third parties that requires a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties at December 31, 2019 and December 31, 2018 was $63.8 million and $8.8 million, respectively. The amount of collateral posted with third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $46.7 million and $11.5 million as of December 31, 2019 and December 31, 2018, respectively.

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Note 16 - Pension and Postretirement Benefit Plans

A. General Overview – The Corporation sponsors two non-qualified defined-benefit supplemental executive retirement plans (“SERP I” and “SERP II”) which are restricted to certain senior officers of the Corporation and a postretirement benefit plan (“PRBP”) that covers certain retired employees and a group of current employees.

Effective March 31, 2008, the Corporation amended SERP I to freeze further increases in the defined benefit amounts to all participants. Effective March 31, 2013, the Corporation curtailed SERP II, as further increases to the defined benefit amounts to over 20% of the participants were frozen. 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 table provides information with respect to our SERP and PRBP, including benefit obligations and funded status, net periodic pension costs, plan assets, cash flows, amortization information and other accounting items.

B. Actuarial Assumptions used to determine benefit obligations as of December 31 of the years indicated:



	SERP I and SERP II				PRBP
	2019		2018		2019		2018
Discount rate	2.80	%	3.95	%	2.20	%	3.45	%
Rate of increase for future compensation	N/A		N/A		N/A		N/A
Expected long-term rate of return on plan assets	N/A		N/A		N/A		N/A

C. Changes in Benefit Obligations and Plan Assets:



	SERP I & SERP II						PRBP
(dollars in thousands)	2019			2018			2019			2018
Change in benefit obligations
Benefit obligation at January 1	$	4,687		$	4,983		$	241		$	353
Service cost	—			—			—			—
Interest cost	179			160			8			9
Plan participants contribution	—			—			38			44
Actuarial loss (gain)	595			(180		)	40			(61		)
Settlements	—			—			—			—
Benefits paid	(303		)	(276		)	(92		)	(104		)
Benefit obligation at December 31	$	5,158		$	4,687		$	235		$	241
Change in plan assets
Fair value of plan assets at January 1	$	—		$	—		$	—		$	—
Actual return on plan assets	—			—			—			—
Settlements	—			—			—			—
Excess assets transferred to defined contribution plan	—			—			—			—
Employer contribution	303			278			54			60
Plan participants’ contribution	—			—			38			44
Benefits paid	(303		)	(278		)	(92		)	(104		)
Fair value of plan assets at December 31	$	—		$	—		$	—		$	—
Funded status at year end (plan assets less benefit obligations)	$	(5,158	)	$	(4,687	)	$	(235	)	$	(241	)

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	For the Year Ended December 31,
	SERP I & SERP II						PRBP
Amounts included in the Consolidated Balance Sheet as Other liabilities and accumulated other comprehensive income including the following:	2019			2018			2019			2018
Accrued liability	$	(3,112	)	$	(3,174	)	$	(99	)	$	(129	)
Net actuarial loss	(2,046		)	(1,513		)	(136		)	(112		)
Prior service cost	—			—			—			—
Unrecognized net initial obligation	—			—			—			—
Net included in Other liabilities in the Consolidated Balance Sheets	$	(5,158	)	$	(4,687	)	$	(235	)	$	(241	)

D. The following tables provide the components of net periodic pension costs for the periods indicated:



SERP I and SERP II Periodic Pension Cost	For the Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Service cost	$	—	$	—	$	—
Interest cost	179		160		176
Amortization of prior service cost	—		—		—
Recognition of net actuarial loss	62		70		59
Net periodic pension cost	$	241	$	230	$	235



PRBP Net Periodic Pension Cost	For the Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Service cost	$	—	$	—	$	—
Interest cost	8		9		11
Amortization of prior service cost	—		—		—
Recognition of net actuarial loss	17		30		36
Net periodic pension cost	$	25	$	39	$	47



	For the Year Ended December 31,
Discount Rate Used in the Calculation of Periodic Pension Costs	2019		2018		2017
SERP I and SERP II	3.95	%	3.30	%	3.75	%
PRBP	3.45	%	2.75	%	2.80	%

E. Plan Assets:

The PRBP, SERP I and SERP II are unfunded plans and, as such, have no related plan assets.

F. Cash Flows

The following benefit payments, which reflect expected future service, are expected to be paid over the next ten years:



(dollars in thousands)	SERP I & SERP II		PRBP
Fiscal year ending
2020	$	342	$	49
2021	339		41
2022	335		35
2023	342		29
2024	349		24
2024-2028	1,600		62

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G. Other Pension and Post Retirement Benefit Information

In 2005, the Corporation placed a cap on the future annual benefit payable through the PRBP. This cap is equal to 120% of the 2005 annual benefit.

H. Expected Contribution to be Paid in the Next Fiscal Year

The 2020 expected contribution for the SERP I and SERP II is $342 thousand.

I. Actuarial Losses

As indicated in section C of this footnote, the Corporation’s pension plans had cumulative actuarial losses as of December 31, 2019 that will result in an increase in the Corporation’s future pension expense because such losses at each measurement date exceed 10% of the greater of the projected benefit obligation or the market-related value of the plan assets. In accordance with GAAP, net unrecognized gains or losses that exceed that threshold are required to be amortized over the expected service period of active employees, and are included as a component of net pension cost. Amortization of these net actuarial losses has the effect of increasing the Corporation’s pension costs as shown on the table in section D of this footnote.

Note 17 – Income Taxes

A. Components of Net Deferred Tax Asset:



	December 31,
(dollars in thousands)	2019		2018
Deferred tax assets:
Loan and lease loss reserve	$	5,128	$	4,476
Other reserves	3,619		2,919
Net operating loss carry-forward	8,107		9,728
Alternative minimum tax credits	833		1,100
Unrealized depreciation of available for sale securities	—		1,656
Operating lease liabilities	10,030		—
Defined benefit plans	1,505		1,377
RBPI Merger Fair Values	647		2,580
Total deferred tax asset	$	29,869	$	23,836
Deferred tax liabilities:
Intangibles and other amortizing fair value adjustments	$	5,154	$	5,290
Originated MSRs	969		1,105
Unrealized appreciation of available for sale securities	1,040		—
Operating lease right-of-use assets	8,948		—
Deferred loan costs	909		1,105
Other reserves	1,166		535
Total deferred tax liability	$	18,186	$	8,035
Total net deferred tax asset	$	11,683	$	15,801

Not included in the table above are deferred tax assets for state net operating losses and unrealized capital losses for partnership investments and their respective valuation allowance of $706 thousand and $608 thousand. The state net operating losses of our leasing subsidiary as of December 31, 2019 will expire between 2023 and 2037.

As a result of the RBPI Merger, deferred tax assets were initially increased by $33.1 million related to purchase accounting adjustments and net deferred tax assets carried over from RBPI. During 2018, adjustments were made to the original purchase accounting adjustments that resulted in an incremental deferred tax asset of $1.1 million.

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B. The provision for income taxes consists of the following:



	December 31,
(dollars in thousands)	2019		2018		2017
Current	$	14,068	$	4,326	$	13,812
Deferred	1,539		9,839		20,418
Total	$	15,607	$	14,165	$	34,230

C. Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as follows:



(dollars in thousands)	2019			Tax Rate		2018			Tax Rate		2017			Tax Rate
Computed tax expense at statutory federal rate	$	15,711		21.0	%	$	16,371		21.0	%	$	20,036		35.0	%
Tax-exempt income	(562		)	(0.8	)%	(470		)	(0.6	)%	(600		)	(1.0	)%
State tax (net of federal tax benefit)	1,045			1.4	%	874			1.1	%	303			0.5	%
Non-deductible merger expense	—			—	%	—			—	%	455			0.8	%
Excess tax benefit – stock based compensation	(144		)	(0.2	)%	(848		)	(1.1	)%	(1,049		)	(1.8	)%
Adjustment to net deferred tax assets for enacted changes in tax laws, rates and return to provision adjustments	—			—	%	(1,895		)	(2.4	)%	15,193			26.5	%
Other, net	(443		)	(0.5	)%	133			0.2	%	(108		)	(0.2	)%
Total income tax expense	$	15,607		20.9	%	$	14,165		18.2	%	$	34,230		59.8	%

D. Tax Law Changes – Impact to Tax Expense

With the enactment of the Tax Cuts and Jobs Act (“Tax Reform” or the “Tax Act”) on December 22, 2017, the federal corporate income tax rate was reduced from 35% to 21% effective January 1, 2018. The Corporation's 2017 financial results included a charge of $15.2 million to income tax expense, primarily resulting from re-measuring the Corporation's net deferred tax assets to reflect the recently enacted lower tax rate effective January 1, 2018.

During 2018, we recorded certain tax provision to tax return true-up adjustments associated with items that were finalized as part of our 2017 tax return filing. We recorded a $2.5 million tax benefit in 2018, primarily for deferred tax temporary difference items that were claimed on the 2017 tax return at a 35% federal tax rate that were recorded at December 31, 2017 as anticipating to be deducted at a 21% federal tax rate. Also during 2018, as a result of additional purchase accounting adjustments during the year, $611 thousand of such purchase accounting adjustments were charged to income tax expense as a result of reducing their original 35% tax benefit to the new 21% tax rate in effect for 2018. There are no remaining provisional items as of December 31, 2018.

Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in continuing operations, but also to items initially recognized in other comprehensive income. The income tax expense recognized as a result of Tax Reform is as follows:



	Year Ended December 31,
(dollars in thousands)	2019		2018			2017
Deferred taxes related to items recognized in continuing operations	$	—	$	(1,895	)	$	14,411
Deferred taxes on net actuarial loss on defined benefit post-retirement benefit plans	—		—			275
Deferred taxes on net unrealized losses on available for sale investment securities	—		—			507
Total income tax (benefit) / expense related to Tax Reform	$	—	$	(1,895	)	$	15,193

Because ASC 740 requires the effect of income tax law changes on deferred taxes to be recognized as a component of income tax expense related to continuing operations rather than backward tracing the adjustment through the accumulated other comprehensive income component of shareholders' equity, the net adjustment to deferred taxes for the year ending December

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31, 2017 detailed above included a net expense totaling $782 thousand related to items recognized in other comprehensive income.

E. Other Income Tax Information

In accordance with the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes”, management recognizes the financial statement benefit of a tax position only after determining that the Corporation would more likely than not 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 percent likelihood of being realized upon settlement with the relevant tax authority. Management applied these criteria to tax positions for which the statute of limitations remained open.

There were no reserves for uncertain tax positions recorded during the years ended December 31, 2019, 2018 or 2017.

The Corporation is subject to income taxes in the U.S. federal jurisdiction, and in multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by tax authorities for the years before 2016.

The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued in 2019.

As of December 31, 2019, the Corporation has net operating loss (“NOL”) carry-forwards for federal income tax purposes of $38.6 million, all of which relate to the RBPI Merger which are subject to an annual usage limitation of approximately $2.7 million. Management estimates it will be able to utilize an additional $5.0 million per year of the NOLs acquired in the RBPI Merger for a five-year period subsequent to December 15, 2017 due to the existence of net unrealized built-in gains (“NUBIG”) under IRC Section 382, these NOLs will begin to expire in 2030. In addition, the Corporation has alternative minimum tax (“AMT”) credits of $833 thousand, approximately $532 thousand of which are related to the RBPI Merger. The credit amounts do not expire. The amount of AMT credits that can be used per year are limited under IRC section 383. The Corporation has determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset related to these amounts.

As a result of the July 1, 2010 merger with FKF, the Corporation succeeded to $2.5 million of tax bad debt reserves that existed at FKF as of June 30, 2010. As of December 31, 2019, the Corporation has not recognized a deferred income tax liability with respect to these reserves. These reserves could be recognized as taxable income and create a current and/or deferred tax liability at the income tax rates then in effect if one of the following conditions occurs: (1) the Bank’s retained earnings represented by this reserve are used for distributions, in liquidation, or for any other purpose other than to absorb losses from bad debts; (2) the Bank fails to qualify as a bank, as provided by the Internal Revenue Code; or (3) there is a change in federal tax law.

Note 18 – Accumulated Other Comprehensive Income (Loss)

The following table details the components of accumulated other comprehensive income (loss) for the years ended December 31, 2019, 2018 and 2017:



(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	)
Other comprehensive (loss)	(1,123		)	(100		)	(1,223		)
Reclassification due to the adoption of ASU No. 2018-02	(507		)	(275		)	(782		)
Balance, December 31, 2017	(2,861		)	(1,553		)	(4,414		)
Other comprehensive (loss) income	(3,368		)	269			(3,099		)
Balance, December 31, 2018	(6,229		)	(1,284		)	(7,513		)
Other comprehensive income (loss)	10,139			(439		)	9,700
Balance, December 31, 2019	$	3,910		$	(1,723	)	$	2,187

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The following tables detail the amounts reclassified from each component of accumulated other comprehensive income (loss) for the years ended December 31, 2019, 2018 and 2017:



	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Description of Accumulated Other Comprehensive Income (Loss) Component	For the Year Ended December 31,									Affected Income Statement Category
(dollars in thousands)	2019			2018			2017
Net unrealized gain on investment securities available for sale:
Realization of gain on sale of investment securities available for sale	$	—		$	(7	)	$	(101	)	Net gain on sale of investment securities available for sale
Realization of gain on transfer of investment securities available for sale to trading	—			(417		)	—			Other operating income
Total	$	—		$	(424	)	$	(101	)
Income tax effect	—			89			35			Income tax expense
Net of income tax	$	—		$	(335	)	$	(66	)	Net income

Unfunded pension liability:
Amortization of net loss included in net periodic pension costs⁽¹⁾	$	79		$	100		$	95		Other operating expenses
Income tax effect	(17		)	(21		)	(33		)	Income tax expense
Net of income tax	$	62		$	79		$	62		Net income

(1) Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 16, “Pension and Postretirement Benefit Plans,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Note 19 - Earnings per Common Share

The calculation of basic earnings per share and diluted earnings per share is presented below:



	Year Ended December 31,
(dollars in thousands, except share and per share data)	2019		2018		2017
Numerator:
Net income available to common shareholders	$	59,206	$	63,792	$	23,016
Denominator for basic earnings per share – Weighted average shares outstanding⁽¹⁾	20,142,306		20,234,792		17,150,125
Effect of dilutive potential common shares	91,065		155,375		248,798
Denominator for diluted earnings per share – Adjusted weighted average shares outstanding	20,233,371		20,390,167		17,398,923
Basic earnings per share	$	2.94	$	3.15	$	1.34
Diluted earnings per share	2.93		3.13		1.32
Antidilutive shares excluded from computation of average dilutive earnings per share	3,671		19,422		27,159

(1) Excludes restricted stock.

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. See Section R, “Earnings per Common Share” of Note 1, “Summary of Significant Accounting Policies,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion on the calculation of earnings per share.

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Note 20 - Revenue from Contracts with Customers

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following table presents the Corporation’s noninterest income by revenue stream and reportable segment for the years ended December 31, 2019 and 2018 and 2017, respectively. Items outside the scope of ASC 606 are noted as such.



	For the Year Ended December 31,
	2019								2018						2017
(dollars in thousands)	Banking			Wealth Management		Consolidated			Banking		Wealth Management		Consolidated		Banking			Wealth Management		Consolidated
Fees for wealth management services	$	—		$	44,400	$	44,400		$	—	$	42,326	$	42,326	$	—		$	38,735	$	38,735
Insurance commissions	—			6,877		6,877			—		6,808		6,808		—			4,589		4,589
Capital markets revenue⁽¹⁾	11,276			—		11,276			4,848		—		4,848		2,396			—		2,396
Service charges on deposit accounts	3,374			—		3,374			2,989		—		2,989		2,608			—		2,608
Loan servicing and other fees⁽¹⁾	2,206			—		2,206			2,259		—		2,259		2,106			—		2,106
Net gain on sale of loans⁽¹⁾	2,342			—		2,342			3,283		—		3,283		2,441			—		2,441
Net gain on sale of investment securities available for sale⁽¹⁾	—			—		—			7		—		7		101			—		101
Net (loss) gain on sale of OREO	(84		)	—		(84		)	295		—		295		(104		)	—		(104		)
Dividends on FHLB and FRB stock⁽¹⁾	1,505			—		1,505			1,621		—		1,621		939			—		939
Other operating income⁽²⁾	10,182			106		10,288			11,360		186		11,546		5,124			197		5,321
Total noninterest income	$	30,801		$	51,383	$	82,184		$	26,662	$	49,320	$	75,982	$	15,611		$	43,521	$	59,132

(1) Not within the scope of ASC 606.

(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling $2.2 million, $2.2 million and $2.0 million for the years ended December 31, 2019 and 2018 and 2017, respectively, which are within the scope of ASC 606.

A description of the Corporation’s primary revenue streams accounted for under ASC 606 follows:

Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Wealth Management Fees: The Corporation earns wealth management fee revenue from a variety of sources including fees from trust administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax service fees, shareholder service fees and brokerage.

Fees that are determined based on the market value of the assets held in their accounts are generally billed monthly, in arrears, based on the market value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e. the trade date.

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Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.

Insurance Commissions: The Corporation earns commissions from the sale of insurance policies, which are generally calculated as a percentage of the policy premium, and contingent income, which is calculated based on the volume and performance of the policies held by each carrier. Obligations for the sale of insurance policies are generally satisfied at the point in time which the policy is executed and are recognized at the point in time in which the amounts are known and collection is reasonably assured. Performance metrics for contingent income are generally satisfied over time, not exceeding one year, and are recognized at the point in time in which the amounts are known and collection is reasonably assured.

Visa Debit Card Income: The Corporation earns income fees from debit cardholder transactions conducted through the Visa payment network. Fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Gains/Losses on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.

Note 21 - Stock–Based Compensation

A. General Information

BMBC permits the issuance of stock options, dividend equivalents, performance stock awards, stock appreciation rights and restricted stock units or awards to employees and directors of the Corporation under several plans. The performance awards and restricted awards may be in the form of stock awards or stock units. Stock awards and stock units differ in that for a stock award, shares of restricted stock are issued in the name of the grantee, whereas a stock unit constitutes a promise to issue shares of stock upon vesting. The accounting for awards and units is identical. The terms and conditions of awards under the plans are determined by the Corporation’s Management Development and Compensation Committee.

Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options. On April 25, 2007, the shareholders approved BMBC’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of BMBC’s common stock were made available for award grants. On April 28, 2010, the shareholders approved BMBC’s “2010 Long Term Incentive Plan” under which a total of 445,002 shares of BMBC’s common stock were made available for award grants, and on April 30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “2010 LTIP”) to, among other things, increase the number of shares available for award grants by 500,000 to 945,002.

In addition to the shareholder-approved plans mentioned in the preceding paragraph, BMBC 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.

The equity awards are authorized to be in the form of, among others, options to purchase BMBC’s common stock, time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”).

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

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 BMBC’s total shareholder return (“TSR”) relative to the performance of the community bank index for the respective period. The fair value of the PSUs based on BMBC’s TSR relative to the performance of a designated peer group or the NASDAQ 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 relative to that designated peer group. The grant date fair value of these PSUs is based on the closing price of BMBC’s stock on the date of the grant. PSU grants may have a vesting percent ranging from 0% to 150%.

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The following table summarizes the remaining shares authorized to be granted under the 2010 LTIP:



	Shares Authorized for Grant
Balance, December 31, 2016	552,959
Grants of RSUs	(40,137	)
Grants of PSUs	(41,323	)
Expiration of unexercised options	250
Non-vesting PSUs⁽¹⁾	—
Forfeitures of PSUs	3,899
Forfeitures of RSUs	4,305
Balance, December 31, 2017	479,953
Grants of RSUs	(38,806	)
Grants of PSUs	(40,722	)
Expiration of unexercised options	—
Non-vesting PSUs⁽¹⁾	—
Forfeitures of PSUs	5,679
Forfeitures of RSUs	1,515
Balance, December 31, 2018	407,619
Grants of RSUs	(71,716	)
Grants of PSUs	(72,273	)
Expiration of unexercised options	—
Non-vesting PSUs⁽¹⁾	12,689
PSUs added by performance factor⁽²⁾	(3,688	)
Forfeitures of PSUs	17,150
Forfeitures of RSUs	9,461
Balance, December 31, 2019	299,242

(1) Non-vesting PSUs represent PSUs that did not meet their performance criteria, were cancelled and are available for future grant.

(2) PSUs added by performance factor represent additional PSUs that vested as a result of performance factor exceeding the target performance at which they were granted.

B. Fair Value of Options Granted

No stock options were granted or assumed during the years ended December 31, 2019, 2018 and 2017.

C. Other Stock Option Information

The following table provides information about options outstanding:



	For the Year Ended December 31,
	2019						2018						2017
	Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding, beginning of period	50,601		$	18.28	$	4.68	115,246		$	20.73	$	4.86	185,023		$	21.04	$	4.88
Expired	—		—		—		—		—		—		(250	)	22.00		4.90
Exercised	(49,700	)	18.26		4.46		(64,645	)	22.65		5.00		(69,527	)	21.55		4.91
Options outstanding, end of period	901		19.33		16.78		50,601		18.28		4.68		115,246		20.73		4.86

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The following table provides information related to options as of December 31, 2019:



Range of Exercise Prices					Options Outstanding and Exercisable	Remaining Contractual Life (in years)	Weighted Average Exercise Price⁽¹⁾
$	16.02	to	$	17.17	338	0.07	$	16.02
17.18		to	18.33		563	4.05	18.33
Total Outstanding and Exercisable					901

(1) Price of exercisable options.

For the years ended December 31, 2019, 2018 and 2017 there are no unvested options.

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:



	Year Ended December 31,
(dollars in thousands)	2019		2018		2017
Proceeds from strike price of value of options exercised	$	907	$	1,464	$	1,498
Related tax benefit recognized	212		312		506
Proceeds of options exercised	$	1,119	$	1,776	$	2,004
Intrinsic value of options exercised	$	1,010	$	1,512	$	1,445

The following table provides information about options outstanding and exercisable options:



	As of December 31,
	2019				2018				2017
(dollars in thousands, except share data and exercise price)	Options Outstanding		Exercisable Options		Options Outstanding		Exercisable Options		Options Outstanding		Exercisable Options
Number	901		901		50,601		50,601		115,246		115,246
Weighted average exercise price	$	19.33	$	19.33	$	18.28	$	18.28	$	20.73	$	20.73
Aggregate intrinsic value	$	20	$	20	$	1,478	$	1,478	$	2,705	$	2,705
Weighted average contractual term	2.6 years		2.6 years		0.7 years		0.7 years		1.2 years		1.2 years

As of December 31, 2019, all compensation expense related to stock options has been recognized.

D. RSUs and PSUs

BMBC has granted RSUs and PSUs under the 2007 LTIP and 2010 LTIP and in accordance with Rule 5635(c)(4) of the Nasdaq listing standards.

RSUs

Compensation expense for 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 year ended December 31, 2019, the Corporation recognized $1.8 million of expense related to BMBC’s RSUs. As of December 31, 2019, there was $2.8 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of 2.1 years.

During the first quarter of 2019, the Corporation adopted a voluntary Years of Service Incentive Program (the "Incentive Program") which offered certain benefits to eligible employees who met the Incentive Program requirements and voluntarily exited from service with the Corporation during 2019. As part of the Incentive Program, the Corporation elected to waive the service requirement as an RSU vesting condition for employees who held RSUs and chose to participate in the Incentive

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Program. As a result, 3,494 RSUs were modified which resulted in $112 thousand of incremental expense recognized during the three months ended March 31, 2019.

The following table details the RSUs for the years ended December 31, 2019, 2018 and 2017:



	Year Ended December 31,
	2019				2018				2017
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Beginning balance	76,746		$	39.71	75,707		$	35.80	58,862		$	29.57
Granted	71,716		36.28		38,806		42.23		40,137		41.23
Vested	(23,535	)	34.66		(36,252	)	34.38		(18,987	)	29.40
Forfeited	(9,461	)	40.23		(1,515	)	36.52		(4,305	)	29.54
Ending balance	115,466		38.57		76,746		39.71		75,707		35.80

PSUs

Compensation expense for PSUs is measured based on their grant date fair value as calculated using the Monte Carlo Simulation and is recognized on a straight-line basis over the vesting period. The grant date fair value of each grant was determined independently using the Monte Carlo Simulation. Assumptions used in the Monte Carlo Simulation for the grants of 14,834 PSUs in February 2019 and 11,631 PSUs in May 2019, whose performance is based on TSR, included expected volatilities of 20.60% and 21.28% and a risk-free rate of interest of 2.46% and 2.31%, respectively.

The Corporation recognized $1.9 million of expense related to the PSUs for the year ended December 31, 2019. As of December 31, 2019, there was $2.5 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 1.8 years.

As part of the Incentive Program, the Corporation elected to waive the service requirement as a PSU vesting condition for employees who held PSUs and chose to participate in the Incentive Program. As a result, 8,208 PSUs were modified which resulted in $250 thousand of incremental expense recognized during the three months ended March 31, 2019.

The following table details the PSUs for the years ended December 31, 2019, 2018 and 2017:



	Year Ended December 31,
	2019				2018				2017
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Beginning balance	121,656		$	36.82	168,453		$	24.76	192,844		$	18.77
Granted	72,273		34.26		40,722		44.56		41,323		37.86
Vested⁽¹⁾	(31,507	)	29.38		(81,840	)	16.40		(61,815	)	15.05
Added by performance factor	3,688		30.45		—		—		—		—
Non-vesting⁽²⁾	(12,689	)	27.13		—		—		—		—
Forfeited	(17,150	)	37.15		(5,679	)	28.79		(3,899	)	21.45
Ending balance	136,271		37.87		121,656		36.82		168,453		24.76

(1) Includes an aggregate of 39 shares paid in cash in lieu of fractional shares for the year ended December 31, 2019 .

(2) Non-vesting PSUs represent PSUs that did not meet their performance criteria, were cancelled and are available for future grant.

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Note 22 - 401(K) Plan and Other Defined Contribution Plans

The Corporation has a qualified defined contribution plan (the “401(K) Plan”) for all eligible employees, under which the Corporation matches employee contributions up to a maximum of 3.0% of the employee’s base salary. The Corporation recognized expense for matching contributions to the 401(K) Plan of $1.4 million, $1.4 million, and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

In addition to the matching contribution above, the Corporation provides a discretionary, non-matching employer contribution to the 401(K) Plan. The Corporation recognized expense for the non-matching discretionary contributions of $1.8 million, $1.5 million, and $489 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.

On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the “EDCP”), a non-qualified defined-contribution plan which was restricted to certain senior officers of the Corporation. The intended purpose of the EDCP is to provide deferred compensation to a select group of employees. The Corporation recognized expense for contributions to the EDCP of $298 thousand, $441 thousand, and $238 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.

Note 23 - Fair Value Measurement

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

The value of the Corporation’s available for sale investment securities, which include obligations of the U.S. government and its agencies, mortgage-backed securities issued by U.S. government- and U.S. government sponsored agencies, obligations of state and political subdivisions, corporate bonds, other debt securities, as well as bond mutual funds are determined by the Corporation, including the use of an independent third party. Management performs tests to assess the validity of these third-party values. The third party’s evaluations are based on market data. They utilize 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 models 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, bid, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

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

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

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

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

Level 3 – Instruments whose significant value drivers are unobservable.

These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following tables summarize the assets at December 31, 2019 and 2018 that are recognized on the Corporation’s Consolidated Balance Sheets using fair value measurement determined based on the differing levels of input.

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Fair value of assets measured on a recurring basis as of December 31, 2019:



(dollars in thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale:
U.S. Treasury securities	$	500,101	$	500,101	$	—	$	—
Obligations of U.S. government & agencies	102,020		—		102,020		—
Obligations of state & political subdivisions	5,379		—		5,379		—
Mortgage-backed securities	366,002		—		366,002		—
Collateralized mortgage obligations	31,832		—		31,832		—
Other investment securities	650		—		650		—
Total investment securities available for sale	$	1,005,984	$	500,101	$	505,883	$	—

Investment securities trading:
Mutual funds	$	8,621	$	8,621	$	—	$	—

Derivatives:
Interest rate swaps	47,627		—		47,627		—
RPAs purchased	90		—		90		—
Total Derivatives	$	47,717	$	—	$	47,717	$	—

Total assets measured on a recurring basis at fair value	$	1,062,322	$	508,722	$	553,600	$	—

Fair value of assets measured on a non-recurring basis as of December 31, 2019:



(dollars in thousands)	Total		Level 1		Level 2		Level 3
Mortgage servicing rights	$	4,838	$	—	$	—	$	4,838
Impaired loans and leases	15,311		—		—		15,311
Total assets measured at fair value on a non-recurring basis	$	20,149	$	—	$	—	$	20,149

Fair value of assets measured on a recurring basis as of December 31, 2018:



(dollars in thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale:
U.S. Treasury securities	$	200,013	$	200,013	$	—	$	—
Obligations of U.S. government & agencies	195,855		—		195,855		—
Obligations of state & political subdivisions	11,332		—		11,332		—
Mortgage-backed securities	289,890		—		289,890		—
Collateralized mortgage obligations	39,252		—		39,252		—
Other investment securities	1,100		—		1,100		—
Total investment securities available for sale	$	737,442	$	200,013	$	537,429	$	—

Investment securities trading:
Mutual funds	$	7,502	$	7,502	$	—	$	—

Derivatives:
Interest rate swaps	12,550		—		12,550		—
RPAs purchased	71		—		71
Total derivatives	$	12,621	$	—	$	12,621	$	—

Total recurring fair value measurements	$	757,565	$	207,515	$	550,050	$	—

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Fair value of assets measured on a non-recurring basis as of December 31, 2018:



(dollars in thousands)	Total		Level 1		Level 2		Level 3
Mortgage servicing rights	$	6,277	$	—	$	—	$	6,277
Impaired loans and leases	22,112		—		—		22,112
OREO	417		—		—		417
Total assets measured at fair value on a non-recurring basis	$	28,806	$	—	$	—	$	28,806

For the year ended December 31, 2019, a net decrease of $44 thousand in the Allowance was recorded, and for the year ended December 31, 2018, a net increase of $204 thousand in the Allowance was recorded 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 year ended December 31, 2019.

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Note 24 – Disclosure about 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. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies based on the exit price notion. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.

The carrying amount and fair value of the Corporation’s financial instruments are as follows:



		As of December 31,
		2019				2018
(dollars in thousands)	Fair Value Hierarchy Level⁽¹⁾	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	Level 1	$	53,931	$	53,931	$	48,456	$	48,456
Investment securities - available for sale	See Note 23	1,005,984		1,005,984		737,442		737,442
Investment securities - trading	See Note 23	8,621		8,621		7,502		7,502
Investment securities – held to maturity	Level 2	12,577		12,661		8,684		8,438
Loans held for sale	Level 2	4,249		4,249		1,749		1,749
Net portfolio loans and leases	Level 3	3,666,711		3,596,268		3,407,728		3,414,921
Mortgage servicing rights	Level 3	4,450		4,838		5,047		6,277
Interest rate swaps	Level 2	47,627		47,627		12,550		12,550
Risk participation agreements purchased	Level 2	90		90		71		71
Other assets	Level 3	52,908		52,908		43,641		43,641
Total financial assets		$	4,857,148	$	4,787,177	$	4,272,870	$	4,281,047
Financial liabilities:
Deposits	Level 2	$	3,842,245	$	3,842,014	$	3,599,087	$	3,594,123
Short-term borrowings	Level 2	493,219		493,219		252,367		252,367
Long-term FHLB advances	Level 2	52,269		52,380		55,374		54,803
Subordinated notes	Level 2	98,705		97,199		98,526		100,120
Junior subordinated debentures	Level 2	21,753		25,652		21,580		31,176
Interest rate swaps	Level 2	47,627		47,627		12,549		12,549
Risk participation agreements sold	Level 2	16		16		2		2
Other liabilities	Level 3	50,251		50,251		60,847		60,847
Total financial liabilities		$	4,606,085	$	4,608,358	$	4,100,332	$	4,105,987

(1) See Note 23, “Fair Value Measurement,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for a description of hierarchy levels.

Note 25 - Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk

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. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in

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the consolidated statements of financial condition. The contractual amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument of commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments.

Commitments to extend credit, which include unused lines of credit and unfunded commitments to originate loans, are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Some of the commitments are expected to expire without being drawn upon, and the total commitment amounts do not necessarily represent future cash requirements. Total commitments to extend credit at December 31, 2019 were $828.9 million. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on a credit evaluation of the counterparty. Collateral varies but may include accounts receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credits are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in extending loan facilities to customers. The collateral varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and residential real estate for those commitments for which collateral is deemed necessary. The Corporation’s obligation under standby letters of credit as of December 31, 2019 was $20.7 million.

Contingencies

Legal Matters

In the ordinary course of its operations, BMBC and its subsidiaries are parties to various claims, litigation, investigations, and legal and administrative cases and proceedings. Such pending or threatened claims, litigation, investigations, legal and administrative cases and proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions. Based on the information currently available, the Corporation believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of BMBC and its shareholders.

On a regular basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest information available. For those matters where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, a liability may be recorded in the consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount or range of the loss is not estimable, legal reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI Merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. Subsequent to the end of the first quarter of 2019, on May 1, 2019, the Court rendered a decision against Crusader. Crusader continues to pursue appeal with the Superior Court of the Commonwealth of Pennsylvania, and is considering other strategic options with respect to this matter during the pendency of the appeal. We do

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not believe that this ruling and the monetary award, if any, ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Indemnifications

In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan-sale contract provisions. These provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These indemnifications may include the repurchase of loans by the Corporation and are considered customary provisions in the secondary market for conforming mortgage loan sales. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such repurchases for the year ended December 31, 2019.

Concentrations of Credit Risk

The Corporation has a material portion of its loans in real estate-related loans. A predominant percentage of the Corporation’s real estate exposure, both commercial and residential, is in the Corporation’s primary trade area, which includes portions of Delaware, Chester, Montgomery and Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and attempts to mitigate this risk to the extent possible in many ways, including the underwriting and assessment of borrower’s capacity to repay. See Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.

Note 26 – Related Party Transactions

In the ordinary course of business, the Bank granted loans to principal officers, directors and their affiliates. The outstanding balances of loans, including undrawn commitments to lend, to such related parties at December 31, 2019 and 2018 were $9.4 million and $9.3 million, respectively.

Related party deposits amounted to $4.8 million and $6.7 million at December 31, 2019 and 2018, respectively.

Note 27 - Dividend Restrictions

The Bank is subject to the Pennsylvania Banking Code of 1965 (the “Code”), as amended, and is restricted in the amount of dividends that can be paid to its sole shareholder, BMBC. The Code restricts the payment of dividends by the Bank to the amount of its net income during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve Board. Accordingly, the dividend payable by the Bank to BMBC beginning on January 1, 2020 is limited to net income not yet earned in 2020 plus the Bank’s total retained net income for the combined two years ended December 31, 2018 and 2019 of $57.3 million. The Bank issued $32.0 million and $26.0 million of dividends to BMBC during the years ended December 31, 2019 and December 31, 2018, respectively. The amount of dividends paid by the Bank may not exceed a level that reduces capital levels to below levels that would cause the Bank to be considered less than adequately capitalized as detailed in Note 28 – “Regulatory Capital Requirements.”

Note 28 - Regulatory Capital Requirements

A. General Regulatory Capital Information

Both BMBC and the Bank are subject to various regulatory capital requirements, administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if taken, could have a direct material effect on BMBC and the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, BMBC and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Beginning in 2015, new regulatory capital reforms, known as Basel III, issued as part of the Dodd-Frank Act began to be phased in. For more information, refer to the section titled Capital Adequacy within Item 1 - Business - Supervision and Regulation beginning at page 7 in this Form 10-K.

B. S-3 Shelf Registration Statement and Offerings Thereunder

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of registered securities consisting of common stock, debt securities, warrants, purchase contracts, rights and units or units consisting of any combination of the foregoing securities. BMBC may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, from time to time, in one or more offerings.

C. Shares Issued in Mergers and Acquisitions

In connection with the RBPI Merger, BMBC issued 3,101,316 common shares, valued at $136.8 million, to former shareholders of RBPI. These shares were registered on an S-4 registration statement filed by the Corporation in April 2017 (SEC File No. 333-216995).

D. Share Repurchases

On August 6, 2015, BMBC announced a stock repurchase program (the “2015 Program”) pursuant to which BMBC may repurchase up to 1,200,000 shares of its common stock, at an aggregate purchase price not to exceed $40 million. During the years ended December 31, 2019 and 2018, 40,016 and 149,284 shares, respectively, were repurchased under the 2015 Program at an average price of $38.12 and $39.76, respectively.

On April 18, 2019, BMBC announced a new stock repurchase program (the “2019 Program”) pursuant to which BMBC may repurchase up to 1,000,000 shares of its common stock. Under the 2019 Program, BMBC may repurchase its common stock at any price, but the aggregate purchase price is not to exceed $45 million. The 2019 Program became effective in the second quarter of 2019 upon the completion of BMBC’s existing 2015 Program. During the year ended December 31, 2019, 82,767 shares were repurchased under the 2019 Program at an average price of $36.22. All share repurchases were accomplished in open market transactions. As of December 31, 2019, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 917,233, at an aggregate purchase price not to exceed $43.9 million.

In addition, it is BMBC’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 vesting.

E. Regulatory Capital Ratios

As set forth in the following table, quantitative measures have been established to ensure capital adequacy ratios required of both BMBC and the Bank. As of December 31, 2019 and 2018, BMBC and the Bank had met all capital adequacy requirements to which they were subject. Federal banking regulators have defined specific capital categories, and categories range from a best of “well capitalized” to a worst of “critically under-capitalized.” Both BMBC and the Bank were classified as “well capitalized” as of December 31, 2019 and 2018.

The following table presents BMBC's and the Bank’s regulatory capital ratios and the minimum capital requirements for the Bank to be considered “Well Capitalized” by regulators as of December 31, 2019 and 2018:

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	Actual				Minimum to be Well Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio
December 31, 2019
Total capital to risk weighted assets:
BMBC	$	547,440	14.69	%	$	372,690	10.00	%
Bank	$	450,212	12.09	%	$	372,435	10.00	%
Tier I capital to risk weighted assets:
BMBC	$	425,773	11.42	%	$	298,152	8.00	%
Bank	$	427,250	11.47	%	$	297,948	8.00	%
Common equity Tier I risk weighted assets:
BMBC	$	404,715	10.86	%	$	242,249	6.50	%
Bank	$	427,250	11.47	%	$	242,083	6.50	%
Tier I leverage ratio (Tier I capital to total quarterly average assets):
BMBC	$	425,773	9.33	%	$	228,216	5.00	%
Bank	$	427,250	9.37	%	$	227,997	5.00	%
December 31, 2018
Total capital to risk weighted assets:
BMBC	$	500,375	14.30	%	$	349,918	10.00	%
Bank	$	419,136	11.99	%	$	349,692	10.00	%
Tier I capital to risk weighted assets:
BMBC	$	382,151	10.92	%	$	279,934	8.00	%
Bank	$	399,438	11.42	%	$	279,754	8.00	%
Common equity Tier I to risk weighted assets:
BMBC	$	361,256	10.32	%	$	227,446	6.50	%
Bank	$	399,438	11.42	%	$	227,300	6.50	%
Tier I leverage ratio (Tier I capital to total quarterly average assets):
BMBC	$	382,151	9.06	%	$	210,830	5.00	%
Bank	$	399,438	9.48	%	$	210,615	5.00	%

The capital ratios for the Bank and BMBC as of December 31, 2019 and 2018, as shown in the above tables, indicate levels above the regulatory minimum to be considered “well capitalized.”

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Note 29 - Selected Quarterly Financial Data (Unaudited)



	2019
(dollars in thousands, except per share data)	1^st Quarter			2^nd Quarter			3^rd Quarter			4^th Quarter
Interest income	$	48,468		$	48,388		$	49,573		$	46,960
Interest expense	10,821			11,777			12,175			10,975
Net interest income	37,647			36,611			37,398			35,985
Provision for loan and lease losses	3,736			1,627			919			2,225
Noninterest income	19,253			20,221			19,455			23,255
Noninterest expense	39,724			35,188			35,173			36,430
Income before income taxes	13,440			20,017			20,761			20,585
Income taxes	2,764			4,239			4,402			4,202
Net income	10,676			15,778			16,359			16,383
Net loss attributable to noncontrolling interest	(1		)	(7		)	(1		)	(1		)
Net income attributable to Bryn Mawr Bank Corporation	$	10,677		$	15,785		$	16,360		$	16,384
Basic earnings per common share⁽¹⁾	$	0.53		$	0.78		$	0.81		$	0.81
Diluted earnings per common share⁽¹⁾	$	0.53		$	0.78		$	0.81		$	0.81
Dividend paid or accrued	$	0.25		$	0.25		$	0.26		$	0.26



	2018
(dollars in thousands, except per share data)	1^st Quarter			2^nd Quarter		3^rd Quarter			4^th Quarter
Interest income	$	43,534		$	44,754	$	45,233		$	47,534
Interest expense	6,095			7,438		8,504			9,547
Net interest income	37,439			37,316		36,729			37,987
Provision for loan and lease losses	1,030			3,137		664			2,362
Noninterest income	19,536			20,075		18,274			18,097
Noninterest expense	36,030			35,836		33,592			34,845
Income before income taxes	19,915			18,418		20,747			18,877
Income taxes	4,630			3,723		4,066			1,746
Net income	15,285			14,695		16,681			17,131
Net (loss) income attributable to noncontrolling interest	(1		)	7		(1		)	(5		)
Net income attributable to Bryn Mawr Bank Corporation	$	15,286		$	14,688	$	16,682		$	17,136
Basic earnings per common share⁽¹⁾	$	0.76		$	0.73	$	0.82		$	0.85
Diluted earnings per common share⁽¹⁾	$	0.75		$	0.72	$	0.82		$	0.84
Dividend paid or accrued	$	0.22		$	0.22	$	0.25		$	0.25

(1) Earnings per share is computed independently for each period shown. As a result, the sum of the quarters may not equal the total earnings per share for the year.

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Note 30 - Parent Company-Only Financial Statements

The condensed financial statements of BMBC (parent company only) are presented below. These statements should be read in conjunction with the Notes to the Consolidated Financial Statements.

A. Condensed Balance Sheets



	December 31,
(dollars in thousands)	2019			2018
Assets:
Cash and cash equivalents	$	93,250		$	78,143
Investment securities	543			418
Investments in subsidiaries, as equity in net assets	638,770			606,023
Premises and equipment, net	1,993			2,091
Goodwill	245			245
Other assets	1,184			1,060
Total assets	735,985			687,980
Liabilities and shareholders’ equity:
Subordinated notes	98,705			98,526
Junior subordinated debentures	21,753			21,580
Other liabilities	2,605			2,485
Total liabilities	123,063			122,591
Common stock, par value $1; authorized 100,000,000 shares; issued 24,650,051 and 24,545,348 shares as of December 31, 2019 and December 31, 2018, respectively, and outstanding of 20,126,296 and 20,163,816 as of December 31, 2019 and December 31, 2018, respectively	24,650			24,545
Paid-in capital in excess of par value	378,606			374,010
Less: Common stock in treasury at cost - 4,523,755 and 4,381,532 shares as of December 31, 2019 and December 31, 2018, respectively	(81,174		)	(75,883		)
Accumulated other comprehensive income (loss), net of deferred income taxes	2,187			(7,513		)
Retained earnings	288,653			250,230
Total shareholders’ equity	612,922			565,389
Total liabilities and shareholders’ equity	$	735,985		$	687,980

B. Condensed Statements of Income



	Year Ended December 31,
(dollars in thousands)	2019		2018			2017
Dividends from subsidiaries	$	35,731	$	30,900		$	950
Net interest and other income	10,962		2,615			2,761
Total operating income	46,693		33,515			3,711
Expenses	10,517		3,527			2,782
Income before equity in undistributed income of subsidiaries	36,176		29,988			929
Equity in undistributed income of subsidiaries	23,048		32,779			21,053
Income before income taxes	59,224		62,767			21,982
Income tax expense (benefit)	18		(1,025		)	(1,034		)
Net income	$	59,206	$	63,792		$	23,016

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C. Condensed Statements of Cash Flows



	Year Ended December 31,
(dollars in thousands)	2019			2018			2017
Operating activities:
Net income	$	59,206		$	63,792		$	23,016
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiaries	(23,048		)	(32,779		)	(21,053		)
Depreciation and amortization	98			98			154
Stock-based compensation cost	3,725			2,750			2,068
Other, net	225			2,860			1,241
Net cash provided by operating activities	40,206			36,721			5,426
Investing Activities:
Investment in subsidiaries	—			—			(15,300		)
Net change in trading securities	—			40			(58		)
Acquisitions, net of cash acquired	—			—			531
Net cash provided by (used in) investing activities	—			40			(14,827		)
Financing activities:
Dividends paid	(20,685		)	(19,289		)	(14,799		)
Proceeds from issuance of subordinated notes	—			—			68,829
Net (purchase of) proceeds from sale of treasury stock for deferred compensation plans	(172		)	2			(115		)
Net purchase of treasury stock through publicly announced plans	(4,524		)	(5,936		)	—
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation	(625		)	(1,639		)	(1,140		)
Proceeds from exercise of stock options	907			1,464			1,498
Repurchase of treasury warrants	—			(1,755		)	—
Net cash (used in) provided by financing activities	(25,099		)	(27,153		)	54,273
Change in cash and cash equivalents	15,107			9,608			44,872
Cash and cash equivalents at beginning of period	78,143			68,535			23,663
Cash and cash equivalents at end of period	$	93,250		$	78,143		$	68,535

Note 31 - 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 leases) 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 in 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. Also included in the Banking segment are two subsidiaries of the Bank, KCMI Capital, Inc. and Bryn Mawr Equipment Financing, Inc., both of which provide specialized lending solutions to our customers.

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. BMT Investment Advisers, formed in May 2017, which serves as investment adviser to BMT Investment Funds, a

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Delaware statutory trust, is also reported under the Wealth Management segment. Effective January 1, 2020, the business of Lau Associates, which is reported in the Wealth Management segment, was transitioned into the Wealth Management Division of the Bank, also reported in the Wealth Management segment. In addition, the Wealth Management Division oversees all insurance services of the Corporation, which are conducted through the Bank’s insurance subsidiary, BMT Insurance Advisors, Inc., and are reported in the Wealth Management segment.

The accounting policies of the Corporation are applied by segment in the following tables. The segments are presented on a pre-tax basis.

The following table details the Corporation’s segments:



	As of or for the Year Ended December 31,
	2019									2018									2017
(dollars in thousands)	Banking			Wealth Management			Consolidated			Banking			Wealth Management			Consolidated			Banking			Wealth Management			Consolidated
Net interest income	$	147,635		$	6		$	147,641		$	149,464		$	7		$	149,471		$	115,124		$	3		$	115,127
Provision for loan and lease losses	8,507			—			8,507			7,193			—			7,193			2,618			—			2,618
Net interest income after loan loss provision	139,128			6			139,134			142,271			7			142,278			112,506			3			112,509
Noninterest income:
Fees for wealth management services	—			44,400			44,400			—			42,326			42,326			—			38,735			38,735
Insurance commissions	—			6,877			6,877			—			6,808			6,808			—			4,589			4,589
Capital markets revenue	11,276			—			11,276			4,848			—			4,848			2,396			—			2,396
Service charges on deposit accounts	3,374			—			3,374			2,989			—			2,989			2,608			—			2,608
Loan servicing and other fees	2,206			—			2,206			2,259			—			2,259			2,106			—			2,106
Net gain on sale of loans	2,342			—			2,342			3,283			—			3,283			2,441			—			2,441
Net gain on sale of investment securities available for sale	—			—			—			7			—			7			101			—			101
Net (loss) gain on sale of OREO	(84		)	—			(84		)	295			—			295			(104		)	—			(104		)
Other operating income	11,687			106			11,793			12,981			186			13,167			6,063			197			6,260
Total noninterest income	30,801			51,383			82,184			26,662			49,320			75,982			15,611			43,521			59,132

Noninterest expenses:
Salaries & wages	54,076			20,295			74,371			46,936			19,735			66,671			36,559			16,692			53,251
Employee benefits	9,572			3,884			13,456			9,046			3,872			12,918			6,350			3,820			10,170
Occupancy and bank premise	10,547			2,044			12,591			9,588			2,011			11,599			8,208			1,698			9,906
Amortization of intangible assets	1,309			2,492			3,801			1,555			2,101			3,656			783			1,951			2,734
Professional fees	4,840			594			5,434			3,747			456			4,203			2,998			270			3,268
Other operating expenses	30,599			6,263			36,862			35,928			5,328			41,256			30,605			4,461			35,066
Total noninterest expenses	110,943			35,572			146,515			106,800			33,503			140,303			85,503			28,892			114,395
Segment profit	58,986			15,817			74,803			62,133			15,824			77,957			42,614			14,632			57,246
Intersegment (revenues) expenses⁽¹⁾	(613		)	613			—			(715		)	715			—			(448		)	448			—
Pre-tax segment profit after eliminations	$	58,373		$	16,430		$	74,803		$	61,418		$	16,539		$	77,957		$	42,166		$	15,080		$	57,246
% of segment pre-tax profit after eliminations	78.0		%	22.0		%	100.0		%	78.8		%	21.2		%	100.0		%	73.7		%	26.3		%	100.0		%
Segment assets (dollars in millions)	$	5,210.4		$	52.9		$	5,263.3		$	4,601.7		$	50.8		$	4,652.5		$	4,398.5		$	51.2		$	4,449.7

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

Wealth Management Segment Information



(dollars in millions)	December 31, 2019		December 31, 2018
Assets under management, administration, supervision and brokerage	$	16,548.1	$	13,429.5

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ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES


•	Evaluation of Disclosure Controls and Procedures

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 Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2019 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures as of December 31, 2019 are effective.


•	Changes in Internal Control over Financial Reporting

There were no changes in the Corporation’s internal control over financial reporting during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.


•	Design and Evaluation of Internal Control Over Financial Reporting

Pursuant to Section 404 of Sarbanes-Oxley, the following is a report of management’s assessment of the design and effectiveness of our internal controls for the fiscal year ended December 31, 2019, and a report from our independent registered public accounting firm attesting to the effectiveness of our internal controls:

Management’s Report on Internal Control Over Financial Reporting

The Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this Annual Report on Form 10-K. The consolidated financial statements and notes included in this Annual Report on Form 10-K have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on Management’s best estimates and judgments.

The Corporation’s Management is responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; provide a reasonable assurance that receipts and expenditures of the Corporation are only being made in accordance with authorizations of Management and directors of the Corporation; and provide a reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by Management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are noted.

Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

The Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, assessed the Corporation’s system of internal control over financial reporting as of December 31, 2019, in relation to the criteria for effective control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on

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this assessment, Management concludes that, as of December 31, 2019, the Corporation’s system of internal control over financial reporting is effective.

KPMG, LLP, which is the independent registered public accounting firm that audited the financial statements in this Annual Report on Form 10-K, has issued an attestation report on the Corporation’s internal control over financial reporting, which can be found under the heading “Report of Independent Registered Public Accounting Firm” at page 64, and is incorporated by reference herein.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required for Item 10 is incorporated by reference to the sections titled “Our Board of Directors and Board Committees,” “Information About Our Directors,” “Information About our Executive Officers,” “Corporate Governance,” “Our Board of Directors and Board Committees, ” and “Audit Committee Report” in the 2020 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required for Item 11 is incorporated by reference to the sections titled “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Our Board of Directors and Board Committees,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in the 2020 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required for Item 12 is incorporated by reference to the sections titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 2020 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required for Item 13 is incorporated by reference to sections titled “Transactions with Related Persons” and “Corporate Governance – Director Independence” in the 2020 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required for Item 14 is incorporated by reference to the section “Independent Registered Public Accounting Firm” in the 2020 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Item 15(a) (1 & 2) Financial Statements and Schedules

The financial statements listed in the accompanying index to financial statements are filed as part of this Annual Report.



	Page
Report of Independent Registered Public Accounting Firm	64
Consolidated Balance Sheets	66
Consolidated Statements of Income	67
Consolidated Statements of Comprehensive Income	68
Consolidated Statements of Cash Flows	69
Consolidated Statements of Changes in Shareholders’ Equity	71
Notes to Consolidated Financial Statements	73

Item 15(a) (3) and (b) — Exhibits



Exhibit No.		Description and References
2.1		Stock Purchase Agreement, dated as of February 18, 2011, by and between Bryn Mawr Bank Corporation and Hershey Trust Company, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with SEC on February 22, 2011

2.2		Amendment to Stock Purchase Agreement, dated as of May 27, 2011, by and between Hershey Trust Company and Bryn Mawr Bank Corporation, incorporated by reference to Exhibit 2.2 of the Corporation’s 8-K filed with the SEC on May 27, 2011

2.3		Assignment and Assumption Agreement, dated as of May 27, 2011, by and between Hershey Trust Company and PWMG Bank Holding Company Trust, incorporated by reference to Exhibit 2.3 of the Corporation’s 8-K filed with the SEC on May 27, 2011

2.4		Stock Purchase Agreement, dated as of February 3, 2012, by and among Bryn Mawr Bank Corporation, Davidson Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J. Costigan, William S. Covert, James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson, Boston Private Financial Holdings, Inc., and Alvin A. Clay III, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with the SEC on February 7, 2012

2.5		Purchase and Assumption Agreement, dated as of April 27, 2012, by and between The Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with the SEC on May 2, 2012

2.6		Amendment to Stock Purchase Agreement, dated as of May 15, 2012, by and among Bryn Mawr Bank Corporation, Davidson Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J. Costigan, William S. Covert, James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson, Boston Private Financial Holdings, Inc., and Alvin A. Clay III, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with the SEC on May 18, 2012

2.7		Amendment to Purchase and Assumption Agreement, dated as of October 12, 2012, by and between The Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with the SEC on October 18, 2012

2.8		Amendment to Purchase and Assumption Agreement, dated as of November 14, 2012, by and between The Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with the SEC on November 19, 2012

2.9		Agreement and Plan of Merger, dated as of May 5, 2014, by and between Bryn Mawr Bank Corporation and Continental Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on May 5, 2014

2.10		Amendment to Agreement and Plan of Merger, dated as of October 23, 2014, between Bryn Mawr Bank Corporation and Continental Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on October 23, 2014

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Exhibit No.		Description and References
2.11		Stock Purchase Agreement, dated as of August 21, 2014, by and among The Bryn Mawr Trust Company, Donald W. Parker, Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014

2.12		Amendment to Stock Purchase Agreement, dated as of October 1, 2014, by and among The Bryn Mawr Trust Company, Donald W. Parker, Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on October 3, 2014

2.13		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

2.14		Amendment No. 1 to Agreement and Plan of Merger, dated December 14, 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 December 18, 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

4.1		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

4.2		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

4.3		Indenture, dated August 6, 2015, by and between Bryn Mawr Bank Corporation and U.S. Bank National Association, as trustee, incorporated by reference to the Corporation’s Form 8-K filed with the SEC on August 7, 2015

4.4		Forms of 4.75% Subordinated Note due 2025 (included as Exhibit A-1 and Exhibit A-2 to the Indenture filed as Exhibit 4.1), incorporated by reference to the Corporation’s Form 8-K filed with the SEC on August 7, 2015

4.5		Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National Association, as trustee, incorporated by reference to the Corporation’s Form 8-K filed with the SEC on December 13, 2017

4.6		First Supplemental Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National Association as trustee, incorporated by reference to the Corporation’s Form 8-K filed with the SEC on December 13, 2017

4.7		Form of 4.25% Fixed-to-Floating Rate Subordinated Note due December 15, 2027 (included as Exhibit A to the Indenture filed as Exhibit 4.2), incorporated by reference to the Corporation’s Form 8-K filed with the SEC on December 13, 2017

4.8		Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as Institutional Trustee, dated October 27, 2004, incorporated by reference to Exhibit 4.1 to RBPI’s Current Report on Form 8-K (included as Exhibit A to Exhibit 10.1) filed with the SEC on November 1, 2004

4.9		Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as Institutional Trustee, dated October 27, 2004, incorporated by reference to Exhibit 4.2 to RBPI’s Current Report on Form 8-K (included as Exhibit A to Exhibit 10.2) filed with the SEC on November 1, 2004

4.10		Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27, 2004, incorporated by reference to Exhibit 10.1 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

4.11		Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27, 2004, incorporated by reference to Exhibit 10.2 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

4.12		Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee Trustee, dated October 27, 2004, incorporated by reference to Exhibit 10.3 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

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Exhibit No.		Description and References
4.13		Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee Trustee, October 27, 2004, incorporated by reference to Exhibit 10.4 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

4.14		Warrant to Purchase Class A Common Stock, issued February 20, 2009, by Royal Bancshares of Pennsylvania, Inc. to the United States Department of the Treasury, incorporated by reference to Exhibit 4.1 to RBPI’s Current Report on Form 8-K filed with the Commission on February 26, 2009

4.15		Description of Registrant’s Securities, filed herewith

10.1*		Amended and Restated Supplemental Employee Retirement Plan of the Bryn Mawr Bank Corporation, effective January 1, 1999, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-K filed with the SEC on March 13, 2008

10.2**		Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-K filed with the SEC on March 16, 2011

10.3*		Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective January 1, 2008 incorporated by reference to Exhibit 10.4 of the Corporation’s Form 10-K filed with the SEC on March 16, 2009

10.4*		Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Bank Corporation, effective January 1, 2009 incorporated by reference to Exhibit 10.5 of the Corporation’s Form 10-K filed with the SEC on March 16, 2009

10.5*		Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Trust Company, effective January 1, 2009 incorporated by reference to Exhibit 10.6 of the Corporation’s Form 10-K filed with the SEC on March 16, 2009

10.6*		Employment Letter Agreement, dated as of April 25, 2014, between the Corporation and Francis J. Leto, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on April 25, 2014

10.7*		Standard Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), as of August 2018, incorporated by reference to Exhibit 10.7 of the Corporation’s Form 10-K filed with the SEC on March 1, 2019

10.8*		Standard Form of Restricted Stock Unit Agreement for Non-Employee Directors (Time/Performance Based), as of August 2018, incorporated by reference to Exhibit 10.8 of the Corporation’s Form 10-K filed with the SEC on March 1, 2019

10.9*		Standard Form of Executive Change-of-Control Agreement, updated January 2019, incorporated by reference to Exhibit 10.9 of the Corporation’s Form 10-K filed with the SEC on March 1, 2019

10.10*		Executive Change-of-Control Amended and Restated Severance Agreement, dated May 21, 2004, between the Bryn Mawr Trust Company and Alison E. Gers, incorporated by reference to Exhibit 10.M of the Corporation’s Form 10-K filed with the SEC on March 15, 2007

10.11**		2019 Voluntary Years of Service Incentive Program – Executive Tier – Form of Separation Agreement, incorporated by reference to Exhibit 10.4 of the Corporation’s Form 10-Q filed with the SEC on May 8, 2019

10.12*		Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), incorporated by reference to Exhibit 10.12 of the Corporation's Form 10-K filed with the SEC on March 2, 2018

10.13**		2019 Standard Form of Restricted Stock Unit Agreement for Executives (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-Q filed with the SEC on May 8, 2019

10.14**		2019 Standard Form of Restricted Stock Unit Agreement for Directors (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.2 of the Corporation’s Form 10-Q filed with the SEC on May 8, 2019

10.15**		Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based) – Multi-Year Vesting, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on September 17, 2014

10.16**		2007 Long Term Incentive Plan, effective April 25, 2007, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-Q filed with the SEC May 10, 2007

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Exhibit No.		Description and References

10.17**		Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, executed December 8, 2008, incorporated by reference to Exhibit 10.20 of the Corporation’s Form 10-K filed with the SEC on March 16, 2009

10.18		Form of Director Letter Agreement, incorporated by reference to Exhibit 10.2 to the Corporation’s Form 10-Q filed with the SEC on August 8, 2014

10.19*		Executive Change-of-Control Amended and Restated Severance Agreement, dated November 2, 2009, between the Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 of the Corporation’s 8-K filed with the SEC on November 6, 2009

10.20**		Form of Restricted Stock Unit Agreement for Employees (Time-Based Cliff Vesting), incorporated by reference to Exhibit 10.2 to the Corporation’s Form 10-Q filed with the SEC on August 7, 2015

10.21**		Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan, effective April 28, 2010, incorporated by reference to Exhibit 10.24 of the Corporation’s Form 10-Q filed with the SEC on May 10, 2010

10.22**		Amended and Restated Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan, effective April 30, 2015, incorporated by reference to Appendix A of the Corporation’s Proxy Statement on Definitive Schedule 14A filed with the SEC on March 20, 2015

10.23**		First Keystone Financial, Inc. Amended and Restated 1998 Stock Option Plan, as assumed by Bryn Mawr Bank Corporation, incorporated by reference to Exhibit 10.1 of the Corporation’s Post-Effective Amendment No.1 to Form S-4 on Form S-3, filed with the SEC on July 9, 2010

10.24		Continental Bank Holdings, Inc. Amended and Restated 2005 Stock Incentive Plan, incorporated by reference to Exhibit 4.3 of the Corporation’s Form S-8 filed with the SEC on January 22, 2015

10.25**		Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, dated as of January 10, 2011, for Francis J. Leto, incorporated by reference to Exhibit 10.30 of the Corporation’s Form 10-K filed with the SEC on March 16, 2011

10.26		Amendment No. 2 to Stock Purchase Agreement by and between PWMG Bank Holding Company Trust and Bryn Mawr Bank Corporation dated September 29, 2011, filed with the SEC on Form 8-K on October 4, 2011

10.27**		Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.32 of the Corporation’s Form 10-Q filed with the SEC on November 9, 2011

10.28**		Form of Restricted Stock Agreement for Directors (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.33 of the Corporation’s Form 10-Q filed with the SEC on November 9, 2011

10.29*		Amendment No. 1 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective as of January 1, 2013, incorporated by reference to Exhibit 10.29 of the Corporation’s Form 10-K filed with the SEC on March 15, 2013

10.30*		Amendment No. 2 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective as of January 1, 2013, incorporated by reference to Exhibit 10.30 of the Corporation’s Form 10-K filed with the SEC on March 15, 2013

10.31*		Form of Letter Agreement entered into with certain executive officers of the Corporation in connection with the curtailment of benefits under the Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, executed December 8, 2008 (SERP II), incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC on April 4, 2013

10.32*		Bryn Mawr Bank Corporation Executive Deferred Compensation Plan, effective January 1, 2013, incorporated by reference to Exhibit 10.32 of the Corporation’s Form 10-K filed with the SEC on March 14, 2014

10.33*		Retention Bonus Agreement, dated as of June 10, 2013, by and between The Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC on June 14, 2013

10.34**		Form of Restricted Stock Unit Agreement for Directors (Time/Performance Based), incorporated by reference to Exhibit 10.34 of the Corporation's Form 10-K filed with the SEC on March 2, 2018

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Exhibit No.		Description and References
10.35**		Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based), incorporated by reference to Exhibit 10.4 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014

10.36**		Form of Restricted Stock Unit Agreement for Directors (Service/Performance Based), incorporated by reference to Exhibit 10.5 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014

10.37**		Form of Restricted Stock Unit Agreement – Inducement Grant, incorporated by reference to Exhibit 10.6 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014

10.38		Third Amended and Restated Dividend Reinvestment and Stock Purchase Plan, effective May 25, 2018, incorporated by reference to the Corporation’s Prospectus (Form 424B2) filed with the SEC on May 25, 2018

10.39*		Employment Letter Agreement, dated December 15, 2017, by and between The Bryn Mawr Trust Company and F. Kevin Tylus, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC on December 18, 2017

10.40		Form of Subordinated Note Purchase Agreement, dated August 6, 2015, by and among Bryn Mawr Bank Corporation and the Purchasers identified therein, incorporated by reference to Exhibit 10.1 the Corporation’s Form 8-K filed with the SEC on August 7, 2015

10.41		Form of Registration Rights Agreement, dated August 6, 2015, by and among Bryn Mawr Bank Corporation and Purchasers identified therein, incorporated by reference to Exhibit 10.2 the Corporation’s Form 8-K filed with the SEC on August 7, 2015

10.42*		Employment Letter Agreement, dated September 8, 2015, by and among Bryn Mawr Bank Corporation, The Bryn Mawr Trust Company and Michael W. Harrington, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC on September 9, 2015

10.43*		Executive Change-of-Control Severance Agreement, dated as of September 8, 2015, by and between The Bryn Mawr Trust Company and Michael W. Harrington, incorporated by reference to Exhibit 10.2 to the Corporation’s Form 8-K filed with the SEC on September 9, 2015

10.44*		Employment Agreement dated as of April 1, 2015, between The Bryn Mawr Trust Company and Lori Goldman, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-Q filed with the SEC on November 3, 2017

10.45*		Employment Letter Agreement, dated November 20, 2017, by and between Bryn Mawr Bank Corporation, The Bryn Mawr Trust Company and Jennifer Dempsey Fox, incorporated by reference to Exhibit 10.45 of the Corporation’s Form 10-K filed with the SEC on March 2, 2018

10.46*		Form of Restricted Stock Unit Agreement for New Employee, incorporated by reference to Exhibit 10.46 of the Corporation’s Form 10-K filed with the SEC on March 2, 2018

10.47**		Form of Restricted Stock Unit Agreement for New Employee, incorporated by reference to Exhibit 10.47 of the Corporation’s Form 10-K filed with the SEC on March 1, 2019

10.48**		Form of Restricted Stock Unit Agreement (Performance Based), incorporated by reference to Exhibit 10.48 of the Corporation’s Form 10-K filed with the SEC on March 1, 2019

10.49**		2019 Voluntary Years of Service Incentive Program – Executive Tier – Plan Document, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-Q filed with the SEC on May 8, 2019

21.1		List of Subsidiaries, filed herewith

23.1		Consent of KPMG LLP, filed herewith

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

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Exhibit No.		Description and References
99.1		Corporation’s Proxy Statement for 2020 Annual Meeting to be held on April 16, 2020, expected to be filed with the SEC on or about March 6, 2020

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

104		The cover page of Bryn Mawr Bank Corporation's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL (contained in Exhibit 101)


* Management contract or compensatory plan arrangement.

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

Item 15(c) — Not Applicable.

ITEM 16. FORM 10-K SUMMARY

None.

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SIGNATURES

Pursuant to the requirements of section 13 or 15d of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.



Bryn Mawr Bank Corporation

By:	/s/ Michael W. Harrington
	Michael W. Harrington
	Chief Financial Officer
	(Principal Financial Officer)

Date: February 28, 2020

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Corporation and in the capacities and on the date indicated.



NAME	TITLE	DATE

/s/ Britton H. Murdoch	Chairman and Director	February 28, 2020
Britton H. Murdoch

/s/ Francis J. Leto	Chief Executive Officer	February 28, 2020
Francis J. Leto	(Principal Executive Officer) and Director

/s/ Michael W. Harrington	Chief Financial Officer	February 28, 2020
Michael W. Harrington	(Principal Financial Officer)

/s/ Michael T. LaPlante	Chief Accounting Officer	February 28, 2020
Michael T. LaPlante	(Principal Accounting Officer)

/s/ Diego F. Calderin	Director	February 28, 2020
Diego F. Calderin

/s/ Michael J. Clement	Director	February 28, 2020
Michael J. Clement

/s/ Andrea F. Gilbert	Director	February 28, 2020
Andrea F. Gilbert

/s/ Wendell F. Holland	Director	February 28, 2020
Wendell F. Holland

/s/ Scott M. Jenkins	Director	February 28, 2020
Scott M. Jenkins

/s/ A. John May, III	Director	February 28, 2020
A. John May, III

/s/ Lynn B. McKee	Director	February 28, 2020
Lynn B. McKee

/s/ F. Kevin Tylus	President and Director	February 28, 2020
F. Kevin Tylus

144


1.	I have reviewed this Annual Report on Form 10-K of Bryn Mawr Bank Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 28, 2020		/s/ Francis J. Leto
		Francis J. Leto, Chief Executive Officer
		(Principal Executive Officer)



Date: February 28, 2020		/s/ Michael W. Harrington
		Michael W. Harrington, Chief Financial Officer
		(Principal Financial Officer)


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.