SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from to
Commission
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) |
(Registrants telephone number, including area code) (610) 525-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
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Common Stock ($1 par value) | Nasdaq Global Market |
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 x
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 x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 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 x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (& 229 405 of this chapter) is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨
Indicate by checkmark whether the Registrant is a shell company (as defined by Rule 126-2 of the Exchange Act):
Yes ¨ No x
The aggregate market value of shares of common stock held by non-affiliates of Registrant (including fiduciary accounts administered by affiliates*) was $182,246,000 on June 30, 2006.
As of December 31, 2006 there were 8,562,209 shares of common stock outstanding.
Documents Incorporated by Reference : Parts I, II and IV Portions of Registrants Annual Report to Shareholders for the year ended December 31, 2006, as indicated, Parts I and III Definitive Proxy Statement of Registrant filed with respect to the Registrants 2007 Annual Meeting of Shareholders to be held on April 25, 2007 filed with the Commission pursuant to Regulation 14A.
* | Registrant does not admit by virtue of the foregoing that its officers and directors are affiliates as defined in Rule 405 and does not admit that it controls the shares of Registrants voting stock held by the Trust Department of its bank subsidiary. |
The exhibit index is on page 14. There are [17] pages in this report.
Form 10-K
Bryn Mawr Bank Corporation
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 1, 2007.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Bryn Mawr Bank Corporation (the Corporation) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include statements with respect to the Corporations 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 anticipate, believe, estimate, expect, intended, may, plan, seek, and similar expressions are intended to identify such forward-looking statements. The Corporations actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation:
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the effect of future economic conditions on the Corporation and its customers, including economic factors which affect consumer confidence in the securities markets, wealth creation, investment and savings patterns, and the Corporations interest rate risk exposure and credit risk; |
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changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets; |
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governmental monetary and fiscal policies, as well as legislation and regulatory changes; |
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changes in accounting requirements or interpretations; |
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the risks of changes in interest rates on the level and composition of deposits, loan demand, and the value of loan collateral and securities, as well as interest rate risk; |
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the effects of competition from other commercial banks, thrifts, mortgage companies, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in the Corporations trade market area and elsewhere including institutions operating locally, regionally, nationally and internationally and such competitors offering banking products and services by mail, telephone, computer and the Internet; |
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any extraordinary events (such as the September 11, 2001 events, the war on terrorism and the U.S. Governments response to those events, including the war in Iraq); |
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the Corporations success in continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time; |
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the Corporations ability to continue to generate investment results for customers and the ability to continue to develop investment products in a manner that meets customers needs; |
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the Corporations timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers; |
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the Corporations ability to originate, sell and service residential mortgage loans; |
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the accuracy of assumptions underlying the establishment of reserves for loan losses and estimates in the value of collateral, the market value of mortgage servicing rights and various financial assets and liabilities; |
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technological changes being more difficult or expensive than anticipated; |
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the Corporations success in managing the risks involved in the foregoing. |
All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this Report are based upon information presently available, and the Corporation assumes no obligation to update any forward-looking statements.
PART I
ITEM 1. | BUSINESS |
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 (the Corporation) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, PA, a western suburb of Philadelphia, PA. The Corporation and its subsidiaries provide wealth management, community banking, residential mortgage lending, insurance and business banking services to its customers through eight full service branches and seven retirement community offices throughout Montgomery, Delaware and Chester counties. The Corporation trades on the Nasdaq Global Market (Nasdaq GM) under the symbol BMTC.
The Corporation competes in a highly competitive market area and includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many regulatory agencies including the Securities and Exchange Commission (SEC), Nasdaq GM, Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Pennsylvania Department of Banking.
WEBSITE DISCLOSURES
The Corporation makes available, free of charge through its website, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practical after the reports are electronically filed with the SEC. These reports can be obtained by logging onto the Corporations website at www.bmtc.com and clicking on Bryn Mawr Bank Corporations SEC Filings.
OPERATIONS
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Bryn Mawr Bank Corporation |
The Corporation has no active staff as of December 31, 2006. The Corporation holds the stock of the Bank. Additionally, the Corporation performs several functions including shareholder communications, shareholder recordkeeping, the distribution of dividends and the periodic filing of reports and payment of fees to Nasdaq GM, the SEC and other regulatory agencies.
A complete list of directors and executive officers of the Corporation and the Bank, as of March 3, 2007 is incorporated by reference to the last page of the Corporations Annual Report to Shareholders for the year ended December 31, 2006.
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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 making 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 and estate administration, investment advisory services, pension and profit sharing administration, custody and trust and tax preparation. As of December 31, 2006, the market value of assets under management and administration administered by the Banks Wealth Management Division was $2.515 billion.
The Corporation, through its Bank subsidiary, is gradually expanding its branch footprint through the establishment of de-novo branch offices. The Corporation opened the Newtown Square, PA office in March 2004, the Exton, PA office in April 2005 and the Ardmore, PA office (relocation from Wynnewood, PA) location in January 2007. The Corporation presently has 8 full service branch offices, plus 7 retirement community locations. Plans are in place to establish a new branch in the West Chester, PA area in 2008. Additionally, other branch sites are under review and consideration. See the section titled COMPETITION later in this item for additional information.
At December 31, 2006, the Corporation and its subsidiaries had 230 full time and 35 part time employees, equaling 247.5 full time equivalent staff.
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OTHER OPERATING SUBSIDIARIES OF THE BANK
The Bank has four operating subsidiaries providing various services as described below:
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Insurance Counsellors of Bryn Mawr, Inc. |
Insurance Counsellors of Bryn Mawr, Inc. (ICBM) began operation in February, 1998 as a wholly owned subsidiary of the Bank. ICBM is a full-service insurance agency, through which the Bank offers insurance and related products and services to its customer base. 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.
ICBM utilizes five licensed insurance agents. ICBM generated $512 thousand of revenue during 2006. ICBM employees are included in the Corporations employment numbers above.
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BMT Settlement Services, Inc. |
BMT Settlement Services, Inc. (BMTS) began operation in February 2002. BMTS is a limited partner in Bryn Mawr Settlement Services, LP (the Limited Partnership), with Commonwealth Land Transfer Company, to provide title search and abstract services to Bank customers. Under the terms of the Limited Partnerships partnership agreement, BMTS receives seventy percent of the profits of the Limited Partnership, after expenses. BMTS is a wholly owned subsidiary of the Bank.
BMTS primary market area is located in southeastern Pennsylvania. BMTS is housed in the main office of the Bank, located at 801 Lancaster Avenue, Bryn Mawr, PA 19010. During 2006, BMTS earned $67 thousand in revenues. BMTS had no employees as of December 31, 2006.
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BMT Mortgage Services, Inc. |
BMT Mortgage Services, Inc. (BMTM) began operations in February, 2005. BMTM is a member in BMT Mortgage Company, LLC, which was established in 2005 to provide mortgage services to customers of Keller Williams Bryn Mawr, PA office. Under the terms of the operating agreement, BMTM has a 40% interest in the entity, will perform certain accounting and administrative functions, and will process certain mortgage applications for a fee. BMTM is a wholly owned subsidiary of the Bank.
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BMT Leasing, Inc. |
BMT Leasing, Inc. (BMTL) began operations in September, 2006. BMTL is a Delaware corporation registered to do business in Pennsylvania. BMTL is an equipment leasing company servicing customers nationwide from its Bryn Mawr location with leases ranging from $5 thousand to $150 thousand. BMTL is a wholly owned subsidiary of the Bank. BMTL had seven employees as of March 1, 2007.
SOURCES OF THE CORPORATIONS REVENUE
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Continuing Operations |
The following table shows the percentage of consolidated revenues.
2006 | 2005 | 2004 | ||||||||||||||||
Interest Income on Loans and Investments |
$ | 45,906 | 71.4 | % | $ | 37,908 | 67.5 | % | $ | 31,347 | 61.3 | % | ||||||
Other Banking Fees including Insurance |
3,696 | 5.8 | % | 3,548 | 6.3 | % | 3,712 | 7.2 | % | |||||||||
Wealth Management Segment |
12,422 | 19.3 | % | 11,542 | 20.5 | % | 10,303 | 20.1 | % | |||||||||
Mortgage Banking Segment |
2,242 | 3.5 | % | 3,215 | 5.7 | % | 5,813 | 11.4 | % | |||||||||
Total Revenues from Operations |
$ | 64,267 | 100.0 | % | $ | 56,213 | 100.0 | % | $ | 51,175 | 100.0 | % | ||||||
See Note 23, Segment Information, in the Notes to the Consolidated Financial Statements for additional information.
STATISTICAL INFORMATION
The statistical information required in this Part I Item I is incorporated by reference to the information appearing in the Corporations Annual Report to Shareholders for the year ended December 31, 2006 in the sections captioned Selected Financial Data (Page 1), Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (Pages 2 to 15) and Financial Statements and related notes (Pages 18 to 39).
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Financial Information About Segments |
The financial information concerning the Corporations business segments is incorporated by reference to the MD&A of the Corporations Annual Report to the shareholders for the year ended December 31, 2006 and Note 23-Segment Information to the financial statements accompanying that Annual Report (Page 39).
COMPETITION
The Corporation and its subsidiaries including the Bank compete for deposits, loans and Wealth Management services in Delaware, Montgomery, Chester and Philadelphia Counties in southeastern Pennsylvania. The Corporation has a significant presence in the affluent Philadelphia suburbs known as the Main Line. The Corporation has eight full service branches and seven limited service offices in life care communities.
The markets in which the Corporation competes are highly competitive. The Corporations direct competition in attracting deposits, loans and wealth management services come from commercial banks, investment management companies, savings and loan associations, and trust companies. 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, full product line, competitive rates and fees.
As mentioned in Managements Discussion and Analysis in the Corporations Annual Report to Shareholders, the competition for lower cost core deposits was extremely difficult in 2006 and is expected to remain that way for the foreseeable future. At the same time, the flat yield curve evident for most of 2006 has made pricing on longer term loans very difficult. Both of these developments will put downward pressure on the net interest margin and may impact operating income.
SUPERVISION AND REGULATION
The Corporation 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.
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Bank Holding Company Regulation |
The Corporation, 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. The Corporation and its non-bank subsidiaries are subject to the supervision of the Federal Reserve Board and the Corporation 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 the Corporation 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 the Corporation, and its subsidiaries formed for such purposes, to engage in such activities, subject to obtaining the Federal Reserve Boards 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
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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 the Corporation, is subject to certain restrictions on any extensions of credit it provides to the Corporation 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 Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources, including capital funds during periods of financial stress, to support each such bank. Consistent with its source of strength policy 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 shareholders has been sufficient to fund fully the dividends, and the prospective rate of earnings retention appears to be consistent with the companys 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 the Corporation, 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 Bank Holding Company Act or other applicable federal banking laws.
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Federal Reserve Board and Pennsylvania Department of Banking Regulations |
The Corporations Pennsylvania state chartered bank, The Bryn Mawr Trust Company, is regulated and supervised by the Pennsylvania Department of Banking (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 Banks 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 Banks 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 Banks depositors and customers rather than holders of the Corporations stock.
The regulations of the Pennsylvania Department of Banking restrict the amount of dividends that can be paid to the Corporation by the Bank. Payment of dividends is restricted to the amount of the Banks retained earnings which was $73.3 million as of December 31, 2006. However, the amount of dividends paid by the Bank cannot reduce capital levels below levels that would cause the Bank to be less than adequately capitalized. The payment of dividends by the Bank to the Corporation is the source on which the Corporation 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 banks located in Pennsylvania is subject to the prior approval of one or more of the following: the Department of Banking, the FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency. 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.
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Deposit Insurance Assessment |
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, which was
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amended pursuant to the Federal Deposit Insurance Reform Act of 2005 (the Act). Under this system, 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. The FDIC places a depository institution in one of four risk categories determined by reference to its capital levels and supervisory ratings. In addition, in the case of those institutions in the lowest risk category, the FDIC further determines its assessment rates based on certain specified financial ratios. Effective January 1, 2007, assessments can range from $0.05 per $100 of deposits in the lowest risk category to $0.43 per $100 of deposits for banks in the highest risk category. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits. The Act provides for a one time premium assessment credit for eligible insured depository institutions. The Bank has been granted a one time credit of approximately $409,000 for use against future FDIC insurance premiums. The Bank anticipates that the credit will offset all of the 2007 premium assessment and a significant portion of the 2008 assessment.
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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 Banks loans, investments and deposits through the Federal Reserve Boards 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 the Corporation 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.
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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 Corporation, 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 the Corporation is also subject to restrictions imposed by federal law. The amount of other payments by the Bank to the Corporation is subject to review by regulatory authorities having appropriate authority over the Bank or Corporation and to certain legal limitations.
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Risk Based Capital Guidelines |
The Federal Reserve Board has promulgated certain Risk Based Capital Guidelines. Under the guidelines, various types of Corporation assets are assigned risk categories and weighted based on their relative risk. In addition, certain off balance sheet items are translated into balance sheet equivalents and also weighted according to their potential risk. The sum of both of these asset categories, referred to as Total Risk Weighted Assets, is then compared to the Corporations total capital, providing a Tier I Capital Ratio, under the guidelines. A Tier II capital ratio is also computed for the Corporation, adding an allowable portion of the loan loss reserve to capital. Both the Tier I and Tier II ratios of the Corporation are in excess of those minimum capital ratios required. The focus of the guidelines is to measure the Corporations capital risk. The guidelines do not explicitly take into account other risks, such as interest rate changes or liquidity.
The Corporation adopted SFAS No. 158, Employers Accounting for Defined Benefit, Pension and other Post Retirement Plans (FAS 158), in the fourth quarter of 2006. As a result of its adoption, the Corporation recorded additional pension liabilities of $6.5 million, deferred taxes of $2.3 million and a reduction of accumulative other comprehensive income (capital) of $4.2 million effective December 31, 2006. This reduction in capital does not have any impact on regulatory capital because the federal bank regulatory agencies announced in December, 2006 that FAS 158 would not affect a banks regulatory capital in 2006 and until the regulators determine otherwise through rulemaking.
The Bank in its normal business originates off-balance sheet items, such as outstanding loan commitments and standby letters of credit. The Bank makes loan commitments to borrowers to assure the borrower of financing by the Bank for a specified period of time and/or at a specified interest rate. The obligation to the Bank, pursuant to an unfunded loan commitment, is limited by the terms of the commitment letter and other loan documentation issued by the Bank to each borrower. The Bank carefully reviews outstanding loan commitments on a periodic basis. A standby letter of credit is an instrument issued by the
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Bank, which represents a contingent obligation to make payments with respect to a specific transaction of a customer. The Bank carefully evaluates the creditworthiness of each of its letter of credit customers. The Corporation carefully monitors its risks as measured by the Risk Capital Guidelines and seeks to adhere to the Risk Capital Guidelines.
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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 others 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 amends section 4 of the Act in order to provide for a framework for the engagement in new financial activities. Bank holding companies 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 a 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 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 become an FHC.
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 FHCs. 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.
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Community Reinvestment Act |
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.
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Privacy of Consumer Financial Information |
The GLB Act also contains a provision designed to protect the privacy of each consumers financial information in a financial institution. Pursuant to the requirements of the GLB Act, the financial institution regulators have promulgated final regulations intended to better protect the privacy of a consumers financial information maintained in financial institutions. The regulations are designed to prevent financial institutions, such as the Bank, from disclosing a consumers nonpublic personal information to third parties that are not affiliated with the financial institution.
However, financial institutions can share a customers 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 the consumers and give the consumers an opportunity to opt-out of such disclosure and, thus, prevent disclosure by the financial institution of the consumers nonpublic personal information to nonaffiliated third parties.
These privacy regulations will affect how consumers information is transmitted through diversified financial companies and conveyed to outside vendors. The Bank does not believe the privacy regulations will have a material adverse impact on its operations in the near term.
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Consumer Protection Rules Sale of Insurance Products |
In addition, as mandated by the GLB Act, the regulators 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.
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The rules provide, that before the sale of insurance or annuity products can be completed, disclosures must be made that state 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 in the case of an insurance product, including an annuity, that involves an investment risk, 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 consumers purchase of an insurance product or annuity from the Bank or its affiliates or on the consumers agreement not to obtain or a prohibition on the consumer obtaining an insurance product or annuity from an unaffiliated entity.
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.
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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 chief executive officer and the chief financial officer; 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 pension 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 companys directors and executive officers; the formation of a public accounting oversight board; auditor independence; and increased criminal penalties for violation of certain securities laws.
KPMG LLP (KPMG), the Corporations Independent Registered Public Accounting Firm, has issued an attestation report that managements assessment that the Corporation maintained effective internal control over financial reporting as of December 31, 2006 is fairly stated, in all material respects, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in their opinion, KPMG stated that the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on COSO.
The rules and regulations which implement the Sarbanes-Oxley Act had a significant economic impact on the compliance cost of the Corporation. It is not possible to assess the future impact on the Corporation or the Bank of any of the foregoing regulations and proposed regulations.
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Patriot Act of 2001 |
The 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. governments war against terrorism. The 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.
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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 the Corporation or its subsidiaries, especially the Bank.
ITEM 1A. | RISK FACTORS |
Investments in the Corporations common shares involve risk. The market price of the Corporations common shares may fluctuate significantly in response to a number of factors including those that follow. The following list contains certain risks that may be unique to the Corporation and to the banking industry. The following list of risks should not be viewed as an all inclusive list or in any particular order.
7
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Future loan losses may exceed the Corporations allowance for loan losses |
The Corporation is subject to credit risk, which is the risk of losing principal or interest due to borrowers failure to repay loans in accordance with their terms. A downturn in the economy or the real estate market in the Corporations market area or a rapid change in interest rates could have a negative effect on collateral values and borrowers ability to repay. This deterioration in economic conditions could result in losses to the Corporation in excess of loan loss allowances. To the extent loans are not paid timely by borrowers, the loans are placed on non-accrual, thereby reducing interest income. To the extent loan charge-offs exceed the Corporations projections, increased amounts allocated to the provision for loan losses would reduce income.
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Rapidly changing interest rate environment could reduce the Corporations 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 large part of the Corporations net income. Interest rates are key drivers of the Corporations net interest margin and subject to many factors beyond the control of Management. As interest rates change, net interest income is affected. Rapidly changing interest rates in the future could result in interest expense increasing faster than interest income because of mismatches in financial instrument maturities and / or competitive pressures. Further, substantially higher interest rates generally reduce loan demand and may result in slower loan growth particularly in real estate related loans, which have been a significant portion of the Corporations revenue growth over the past two years. 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. Also, 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 of the Corporations Annual Report to Shareholders for additional details regarding interest rate risk.
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A general economic slowdown could impact Wealth Management Division revenues |
A general economic slowdown might decrease the value of Wealth Management Division assets under management and administration resulting in lower fee income. Such an economic downturn might also result in Wealth Management Division clients seeking alternative investment opportunities with other providers, resulting in lower fee income to the Corporation.
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Slower than anticipated growth in new branches and from lower than expected new business could result in reduced net income |
The Corporation has placed a strategic emphasis on expanding the branch network through the opening of new branch locations. Executing this strategy carries risks of slower than anticipated growth in new branch locations and from lower than expected loan, deposit and other income from these new branches. New branches require a significant investment of both financial and personnel resources. Lower than expected loan, deposit and other revenue growth in new branches could result in additional expenses, lower revenue and might divert resources from current core operations, ultimately reducing net income .
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The financial services industry is very competitive |
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 Corporations market area. The Corporations competitors include other community banks, larger banking institutions, trust companies and a wide range of other financial institutions such as credit unions, 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 regards to advertising and public relations spending. For a more complete discussion of our competitive environment, see BusinessCompetition in Item 1 above. If the Corporation is unable to compete effectively, the Corporation will lose market share and income from deposits, loans, and other products may be reduced.
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Decreased mortgage origination, volume and pricing decisions of competitors |
The Corporation originates, sells and services mortgage loans. Changes in interest rates and pricing decisions by our loan competitors affect demand for the Corporations mortgage loan products, the revenue realized on the sale of loans and revenues received from servicing such loans for others, ultimately reducing the Corporations net income.
8
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New leasing business may result in additional risks not previously experienced by the Corporation |
The Corporations new leasing business which began operations in September 2006 consists of leasing various types of equipment to businesses in amounts ranging from $5 thousand to $150 thousand throughout the United States. In addition to anticipated credit losses higher than our traditional lending business, the Corporation will be operating in a geographic area well beyond our Philadelphia market area. Additional risks might include additional state regulatory burdens including multi-state tax issues such as state income taxes, personal property taxes and sales and use taxes.
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Additional, risk factors also include the following all of which may reduce revenues and / or increase expenses and/or pull Managements attention away from core banking operations which may ultimately reduce the Corporations net income |
|
Sufficient funding to support earning asset growth |
|
Inability to hire or retain key professionals, management and staff |
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Changes in securities analysts estimates of financial performance |
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Volatility of stock market prices and volumes |
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Rumors or erroneous information |
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Changes in market values of similar companies |
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New developments in the banking industry |
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Variations in quarterly or annual operating results |
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New litigation or changes in existing litigation |
|
Regulatory actions |
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Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies |
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
The Corporation maintains its headquarters and its largest branch location in a three-story, stone-front office building consisting of 37,000 net useable square feet located at the corner of Lancaster and Bryn Mawr Avenues in Bryn Mawr, PA. The building has been the Corporations headquarters since its founding in 1889. In 1988 additional space was added to the main office building to facilitate drive-in banking and expanded office space. The Corporations and its subsidiaries own the headquarters and main office buildings.
As part of the main office complex, the Corporation leases two buildings and owns a third building. Two of these buildings have accounting and other administrative functions and the Corporations Wealth Division. Parts of one of the three buildings are subleased to several tenants on short term leases.
The Corporations operations center and Wayne branch office are located in a three story building in Wayne, PA, approximately 6 miles from the main office complex. The Corporation owns that building.
Additionally, the Corporation and its subsidiaries own or lease eight branch office locations and seven life care community office locations. The Corporation owns five of its branch locations and has long term ground leases on its most recently established branches. All of the life care community office locations are leased under various terms ranging from month to month up to five years.
The Corporation recently sold the Wynnewood, PA branch location. See Note 24 Subsequent Event Sale of Wynnewood Branch in the Consolidated Financial Statements in the Corporations Annual Report to Shareholders on page 39.
Total monthly minimum cash lease payments for office, branch office (including ground leases) and life care community locations amounts to $63 thousand per month.
9
ITEM 3. | LEGAL PROCEEDINGS |
Neither the Corporation nor any of its subsidiaries is a party to, nor is any of their property the subject of, any material legal proceedings other than ordinary routine litigation incident to their businesses.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, which is required to be disclosed pursuant to the instructions contained in the form for this report.
PART II
ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
|
Price Range of Shares |
The information required by this Item 5 is incorporated by reference to the information appearing under the caption Price Range of Shares on the last page of the Corporations Annual Report to Shareholders for the year ended December 31, 2006.
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Issuers Purchases of Equity Securities |
The following tables present the repurchasing activity of the Corporation during the fourth quarter of 2005:
Shares Repurchased in the 4 th Quarter of 2006 were as follows: (1)(2)
Period: |
Total
Number of
|
Average
Price Paid
|
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of
Shares that May Yet Be Purchased Under the Plan or Programs |
|||||
Oct. 1, 2006 Oct. 31,2006 |
449 | $ | 22.27 | | 388,500 | ||||
Nov. 1, 2006 Nov. 30, 2006 |
39,005 | 22.91 | 38,000 | 350,500 | |||||
Dec. 1, 2006 Dec. 31, 2006 |
40,500 | 24.10 | 40,500 | 310,000 | |||||
Total |
79,954 | $ | 23.51 | 78,500 | 310,000 | ||||
Notes to these tables:
(1) | On February 24, 2006, the Board of Directors of the Corporation adopted a new stock repurchase program (the 2006 Program) under which the Corporation may repurchase up to 450,000 shares of the Corporations common stock, not to exceed $10 million. The 2006 Program was publicly announced in a Press Release dated February 24, 2006. There is no expiration date on the 2006 Program and the Corporation has no plans for an early termination of the 2006 Program. All shares purchased through the 2006 Program were accomplished in open market transactions. |
(2) | In October 2006, 449 shares were purchased by the Corporations deferred compensation plan and in November 2006, 1,005 shares were purchased by the Corporations Thrift Plan through open market transactions by the Corporations Wealth Management Division investment personnel. |
ITEM 6. | SELECTED FINANCIAL DATA |
The information required by this Item 6 is incorporated by reference to the information appearing under the caption Selected Financial Data in the financial section of the Corporations Annual Report to Shareholders for the year ended December 31, 2006 at page 1.
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS (MD&A) |
The information required by this Item 7 is incorporated by reference to the information appearing under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations in the financial section of the Corporations Annual Report to Shareholders for the year ended December 31, 2006 at pages 2 to 15.
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ITEM 7A. | QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The quantitative and qualitative disclosures about market risks are included in the MD&A, in various sections beginning with Net Interest Income through Contractual Cash Obligations of the Corporation in the Corporations Annual Report to Shareholders at pages 6 to 14.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements and the auditors report thereon and supplementary data required by this Item 8 are incorporated by reference to the financial section of the Corporations Annual Report to Shareholders for the year ended December 31, 2006 at pages 16 to 41.
ITEM 9. | CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
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Evaluation of Disclosure Controls and Procedures |
The Corporation carried out an evaluation, under the supervision and with the participation of the Corporations management, including the Corporations Chief Executive Officer, Frederick C. Peters II and Chief Financial Officer, J. Duncan Smith, CPA, of the effectiveness of the design and operation of the Corporations 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, 2006 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporations disclosure controls and procedures as of December 31, 2006, are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporations periodic SEC filings.
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Changes in Internal Control over Financial Reporting |
As of the date of this Report, there have not been any significant changes in the Corporations internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Corporations internal control over financial reporting.
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Managements Report on Internal Control over Financial Reporting |
The information required in this Item 9A is incorporated by reference to the financial section of the Corporations Annual Report to Shareholders for the year ended December 31, 2006 at page 16
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Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders Bryn Mawr Bank Corporation:
We have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting appearing under Item 9A, that Bryn Mawr Bank Corporation and subsidiaries (the Corporation) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Bryn Mawr Bank Corporations management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Corporations internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys 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 companys 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 companys assets that could have a material effect on the financial statements.
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.
In our opinion, managements assessment that Bryn Mawr Bank Corporation maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Bryn Mawr Bank Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Bryn Mawr Bank Corporation as of December 31, 2006 and 2005, and the related consolidated statements of income, cash flows, changes in shareholders equity and comprehensive income, for each of the years in the three-year period ended December 31, 2006, and our report dated March 9, 2007 expressed an unqualified opinion on those consolidated financial statements.
Philadelphia, Pennsylvania
March 9, 2007
ITEM 9B. | OTHER INFORMATION |
None
11
PART III
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The information with respect to Directors of the Corporation is incorporated by reference to the definitive proxy statement of the Corporation filed with the SEC pursuant to Regulation 14A at pages 5 to 12.
The information with respect to Committees of the Corporations Board of Directors are incorporated by reference to the definitive proxy statement of the Corporation filed with the SEC pursuant to Regulation 14A at pages 6 to 12.
Each member of the Audit Committee is independent and financially literate as defined by Nasdaq GM. The Board of Directors of the Corporation has determined that Scott M. Jenkins and Britton H. Murdoch are financial experts as defined by SEC regulations.
The Boards of Directors of the Corporation and the Bank have determined that all of its members are independent and meet the independence requirements of the Nasdaq GM, except for Frederick C. Peters, II. Because Mr. Peters is the President and Chief Executive Officer of the Corporation and the Bank, he is not independent. Mr. Peters also serves as Chairman of the Corporation and the Bank.
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Executive Officers of the Corporation and the Bank |
Below is certain information with respect to the executive officers of the Corporation and Bank as of March 1, 2007:
NAME |
AGE AS OF MARCH 1, 2006 |
OFFICE WITH THE CORPORATION AND/OR BANK |
||
Frederick C. Peters II | 57 | President and Chief Executive Officer and Chairman of Corporation and Bank | ||
J. Duncan Smith, CPA | 48 | Treasurer and Chief Financial Officer of Corporation and Executive Vice President, Treasurer & Chief Financial Officer of Bank | ||
Alison E. Gers | 49 | Executive Vice President of Bank Community Banking Division, Marketing, Technology and Information, Services and Operations | ||
Joseph G. Keefer | 48 | Executive Vice President of Bank - Chief Lending Officer | ||
Robert J. Ricciardi | 58 | Secretary of Corporation and Executive Vice President, Secretary and Chief Credit Policy Officer of the Bank | ||
Matthew G. Waschull | 45 | Executive Vice President of Bank Wealth Management Division |
|
Mr. Peters was elected President and Chief Executive Officer and a Director of the Corporation and the Bank on January 22, 2001. Mr. Peters was elected the Chairman of the Board of the Bank and Corporation, effective August 5, 2002. Prior to that, Mr. Peters was founder, President and Chief Executive Officer of the 1 st Main Line Bank, a division of National Penn Bank, from May 1995 to January 2001. |
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Mr. Smith was employed by the Corporation in April 2005 as Treasurer and Chief Financial Officer of the Corporation and as Executive Vice President, Treasurer and Chief Financial Officer of the Bank. From March, 1993 through March 2005, Mr. Smith was the Principal Accounting Officer for First Chester County Corporation which is headquartered in West Chester, PA. During his tenure at First Chester County Corporation he held a variety of positions, where his last position was as Executive Vice President and Chief Financial Officer. |
|
Ms. Gers was employed by the Bank in 1998 as Senior Vice President of Marketing. Ms. Gers was appointed Executive Vice President of the Bank in 2001. Since joining the Bank, Ms. Gers has held various positions. As of September 2005 Ms. Gers was responsible for the Community Banking Division, marketing, technology and information services and operations. |
12
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Mr. Keefer was employed by the Bank in 1991 as Vice President and Commercial Lending manager. Mr. Keefer was made the Banks Chief Lending Officer in December 1997. In December 2002 Mr. Keefer assumed responsibility for the Banks Credit Division. In February 2001, Mr. Keefer was designated Executive Vice President and Chief Lending Officer of the Bank. |
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Mr. Ricciardi was employed by the Bank in 1971. In January 2001, Mr. Ricciardi was named Secretary of the Corporation and the Bank, and was responsible for the Credit Division, the Community Banking Division and the Risk Management Division. In December 2002, Mr. Ricciardi relinquished responsibility for the Credit Division. As of September 2005, Mr. Ricciardi was responsible for the Risk Management Division, the Human Resources/Facilities Division and Insurance Counsellors of Bryn Mawr. |
|
Mr. Waschull was appointed Executive Vice President of the Bank in charge of the Wealth Management Division in February 2007. Prior to joining Bryn Mawr Trust, Mr. Waschull served as Managing Director for a substantial segment of the private wealth management business at Wilmington Trust Company in Wilmington, Delaware. |
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None of the above executive officers has any family relationship with any other executive officer or with any director of the Corporation or Bank. |
The Corporation has adopted a Code of Business Conduct and Ethics (the Code) which amended, restated and combined into one code its Code of Ethics for Officers and Directors and its Employee Code of Ethics. The Code is available on the Corporations website at www.bmtc.com under the Code of Ethics caption and printed copies are available to any shareholder upon request. The Code meets the requirements for a code of ethics for the Corporations principal executive officer, principal financial officer or persons performing similar functions under Item 406 of Regulation S-K of the SEC. Any amendments to the Code, or any waivers of the Code for directors or executive officers will be disclosed promptly on a Form 8-K filed with the SEC or by any other means approved by the SEC.
The information with respect to compliance with Section 16 of SEC Exchange Act of 1934 is incorporated by reference to the definitive proxy statement of the Corporation filed with the SEC pursuant to Regulation 14A at page 28.
ITEM 11. | EXECUTIVE COMPENSATION |
|
The information required for Item 11 is incorporated by reference to the executive compensation section and the Corporations compensation committee report section of the definitive proxy statement of the Corporation, filed with the SEC pursuant to Regulation 14A at pages 12 to 27. |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
|
The information required for Item 12 is incorporated by reference to the Corporations definitive proxy statement, filed with the SEC pursuant to Regulation 14A at pages 2 to 3. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
|
The information required for Item 13 is incorporated by reference to the Corporations definitive proxy statement, filed with the SEC pursuant to Regulation 14A at page 27. |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
|
The information required for Item 14 is incorporated by reference to the Corporations definitive proxy statement, filed with the SEC pursuant to Regulation 14A at pages 27 to 28. |
13
PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | The following exhibits are filed as a part of this report. |
EXHIBIT TABLE
|
3 - Articles of Incorporation and By-Laws |
(A) (i) | Articles of Incorporation, effective August 8, 1986, are incorporated by reference to Form S-4 of the Registrant, No. 33-9001. |
(ii) | Amendment to the Articles of Incorporation, effective April 23, 1998 is incorporated by reference to the Corporations Proxy Statement dated March 6, 1998 and filed with the SEC. |
(iii) | Articles of Merger / Consolidation, effective April 1, 1999 are incorporated by reference to the SECs Form 10-K filed with the Commission on March 23, 2003 as Exhibit 3(A)III. |
(B) | Amended and Restated By-Laws of the Registrant are incorporated by reference to the Corporations 10-K filed with the SEC on March 23, 2003 as Exhibit B. |
|
4 - Instruments defining the rights of security holders |
(A) | Articles of Incorporation and By-Laws: See Item 3(A) & (B) above. |
(B) | Shareholders Rights Plan: incorporated by reference to 8-K filed with the SEC on November 25, 2003. |
|
10 - Material Contracts |
(A) | License Agreement dated December 30, 1994, between Bryn Mawr Bank Corporation and FIServ Cir, Inc. is incorporated by reference to the Corporations 10-K, filed with the SEC on March 31, 1995. |
(B) | The Bryn Mawr Bank Corporation 1998 Stock Option Plan, is hereby incorporated by reference to the Corporations Proxy Statement dated March 2, 1998 and filed with the SEC as Exhibit A to the Proxy Statement. |
(C) | Agreement dated January 1, 1999 between Bryn Mawr Brokerage Company, Inc. and UVEST Financial Services Group, Inc., to provide brokerage support services to BM Brokerage is incorporated by reference to the Corporations Form 10-K filed with the SEC on March 30, 1999. |
(D) | Employment Agreement dated January 11, 2001 between Bryn Mawr Bank Corporation and Frederick C. Peters II is incorporated by reference to the Corporations From 10-K, filed with the SEC on March 30, 2001. |
(E) | The Bryn Mawr Bank Corporation 2001 Stock Option Plan, is hereby incorporated by reference to the Corporations Proxy Statement dated March 8, 2001 and filed with the SEC on March 8, 2001 as Appendix B to the Proxy Statement. |
(F) | Addendum, dated August 15, 2001, to the License agreement between Bryn Mawr Bank Corporation and Fiserv Solutions, Inc. dated December 30, 1994 is incorporated by reference to the Corporations Form 10-K, filed with the SEC on March 30, 2002. |
(G) | Amendment dated August 8, 2002 to the Agreement between Bryn Mawr Brokerage Company, Inc. and UVEST Financial Services, Group, Inc. dated January 1, 1999 and incorporated by reference to the Corporations Form 10-K filed with the SEC on March 30, 1999, to include The Bryn Mawr Trust Company as Subscriber to the original contract is incorporated by reference to the Corporations Form 10-K, filed with the SEC on March 26, 2003. |
(H) | Bryn Mawr Bank Corporation 2004 Stock Option Plan is incorporated by reference to the Form S-8, filed with the Securities and Exchange Commission on March 15, 2004. |
(I) | Master Services agreement dated September 16, 2003, effective August 1, 2004 and an amendment to the master services agreement dated March 2, 2004, between SEI Investment Management Corporation and The Bryn Mawr Trust Company to provide data processing services for the Banks trust accounts incorporated by reference to the Corporations Form 10-K filed with the SEC on March 7, 2005. |
(J) | Agreement dated September 16, 2003, effective August 1, 2004, between The Bryn Mawr Trust Company and SEI Private Trust Company, to provide mutual fund clearing services for the Banks trust customers is incorporated by reference to the Corporations Form 10-K, filed with the SEC on March 7, 2005. |
(K) | Executive Severance and Change of Control Agreement for Frederick C. Peters, II, is attached herewith as Exhibit 10(K). |
14
(L) | Executive Severance and Change of Control Agreement for J. Duncan Smith is incorporated by reference to the Corporations Form 8-K filed with the SEC on April 6, 2004. |
(M) | Executive Severance and Change of Control Agreement for Alison E. Gers is attached herewith as Exhibit 10(M). |
(N) | Executive Severance and Change of Control Agreement for Joseph G. Keefer is attached herewith as Exhibit 10(N). |
(O) | Executive Severance and Change of Control Agreement for Robert J. Ricciardi is attached herewith as Exhibit 10(O). |
(P) | Executive Severance and Change of Control Agreement for Matthew G. Waschull is attached herewith as Exhibit 10(P). |
(Q) | Form of Key Employee Non-Qualified Stock Option Agreement is incorporated by reference to the Corporations Form 10-Q filed with the SEC on March 10, 2005. |
(R) | Form of Non-Qualified Stock Option Agreement for Non-Employee Directors is incorporated by reference to the Corporations Form 10-Q filed with the SEC on May 10, 2005. |
(S) | Deferred Payment Plan for Directors of Bryn Mawr Bank Corporation dated January 1, 2000 is attached herewith as Exhibit 10(S). |
(T) | Deferred Payment Plan for Directors of the Bryn Mawr Trust Company effective January 1, 2000 is attached herewith as Exhibit 10(T). |
(U) | Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation dated January 1, 1999 is attached herewith as Exhibit 10(U). |
|
13 - Annual Report to Security Holders |
The Registrants 2006 Annual Report to Shareholders is attached herewith as Exhibit 13.
|
21 - Subsidiaries of the Registrant |
Subsidiaries of the Corporation:
Name |
State of Incorporation |
Status |
||
The Bryn Mawr Trust Company |
Pennsylvania | Active | ||
Bryn Mawr Financial Services, Inc. |
Pennsylvania | Inactive | ||
Bryn Mawr Advisors, Inc. |
Pennsylvania | Inactive | ||
Bryn Mawr Brokerage Co., Inc. |
Pennsylvania | Inactive | ||
Joseph W. Roskos Co., Inc. |
Pennsylvania | Inactive | ||
Bryn Mawr Asset Management, Inc. |
Pennsylvania | Inactive | ||
Bryn Mawr Finance, Inc. |
Delaware | Inactive |
Subsidiaries of the Bank:
Name |
State of Incorporation |
Status |
||
Insurance Counsellors of Bryn Mawr, Inc. |
Pennsylvania | Active | ||
BMT Settlement Services, Inc. |
Pennsylvania | Active | ||
BMT Mortgage Services, Inc. |
Pennsylvania | Active | ||
BMT Leasing, Inc. |
Delaware | Active |
|
23 - Consent of Independent Registered Public Accounting Firm |
.1 - | Consent of KPMG LLP filed herewith as Exhibit 23.1. |
|
31 - Certification of Annual Report |
.1 - | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
.2 - | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32 - Certification Pursuant to 18 U.S.C. Section 1350 |
.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. |
.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. |
15
|
99 Additional Exhibits |
(A) | Registrants Proxy Statement for its 2007 Annual Meeting to be held on April 25, 2007, was expected to be filed with the Securities and Exchange Commission on or around March 15, 2007 and is incorporated by reference as Exhibit 99(A). |
(B)(b) INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS :
|
Report of Independent Registered Public Accounting Firm |
The report of Independent Registered Public Accounting Firm, KPMG LLP, as pertaining to the Consolidated Financial Statements of Bryn Mawr Bank Corporation for 2006 and related notes is incorporated by reference to the Corporations 2006 Annual Report to Shareholders at page 17.
|
Consolidated Financial Statements and Related Notes |
The Consolidated Financial Statements and related Notes are incorporated by reference to the financial section of the Corporations 2006 Annual Report to Shareholders: See the index to the financial statements for the specific page references.
|
Supplementary Data |
Quarterly Results of Operations are incorporated by reference to the information under the caption Selected Quarterly Financial Data (Unaudited), in Note 22 of the financial section of the Corporations Annual Report to Shareholders for the fiscal years ended December 31, 2006 and 2005.
Financial Statement Schedules are omitted because of the absence of the conditions under which they are required or because the information called for is included in the Consolidated Financial Statements or Notes thereto.
|
Exhibits: |
For information
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
(Registrant) Bryn Mawr Bank Corporation
By (Signature and Title) | /s/ J. Duncan Smith, Treasurer and Chief Financial Officer | |
Date March 15, 2007
16
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 / F REDERICK C. P ETERS II Frederick C. Peters II |
Chairman, President and Chief Executive Officer (Principal Executive Officer) and Director | March 13, 2007 | ||
/ S / J. DUNCAN SMITH, CPA J. Duncan Smith |
Treasurer and Chief Financial Officer (Principal Financial and Principal Accounting Officer) | March 13, 2007 | ||
David E. Lees |
Director | March __, 2007 | ||
/ S / A NDREA F. G ILBERT Andrea F. Gilbert |
Director | March 14, 2007 | ||
Wendell F. Holland |
Director | March __, 2007 | ||
/ S / F RANCIS J. L ETO Francis J. Leto |
Director | March 14, 2007 | ||
/ S / B. L OYALL T AYLOR , J R . B. Loyall Taylor, Jr. |
Director | March 13, 2007 | ||
/ S / N ANCY J. V ICKERS Nancy J. Vickers |
Director | March 14, 2007 | ||
/ S / T HOMAS A. W ILLIAMS Thomas A. Williams |
Director | March 13, 2007 | ||
Britton H. Murdoch |
Director | March __, 2007 | ||
/ S / S COTT M. J ENKINS Scott M. Jenkins |
Director | March 14, 2007 |
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Exhibit 10.(K)
THE BRYN MAWR TRUST COMPANY
EXECUTIVE CHANGE-OF-CONTROL
SEVERANCE AGREEMENT
Agreement made as of January 22, 2001 between The Bryn Mawr Trust Company, a Pennsylvania financial institution, subject to the provisions of the Pennsylvania Banking Code of 1965, as amended (the Company), and Frederick C. Peters, II (the Employee).
WHEREAS, the Employee is presently employed by the Company as its President and CEO;
WHEREAS, the Company considers it essential to foster the employment of well qualified key management personnel, and, in this regard, the board of directors of the Company recognizes that, as is the case with many financial institutions, the possibility of a change of control of the Companys publicly held parent company, Bryn Mawr Bank Corporation, (BMBC) may exist and that such possibility, and the uncertainty and questions which it may raise among the Companys management, may result in the departure or distraction of key management personnel to the detriment of the Company and ultimately to the detriment of BMBC and its shareholders;
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WHEREAS, the Boards of directors of the Company and BMBC have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of the Companys management to their assigned duties, without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the BMBC, although no such change is now contemplated; and
WHEREAS, in order to induce the Employee, a key member of the Companys management, to remain in the employ of the Company, the Company agrees that the Employee shall receive the compensation and benefits set forth in this Agreement in the event his/her employment with the Company is terminated subsequent to a Change of Control (as defined in Section 1 hereof) of BMBC, as a cushion against the financial and career impact on the Employee of any such Change of Control;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions . For all purposes of this Agreement, the following terms shall have the meanings specified in this Section, unless the context clearly otherwise requires:
(a) Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations issued under the Securities Exchange Act of 1934, as amended (the Exchange Act).
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(b) AIP shall mean any Annual Incentive Plan of the Company, as in effect immediately prior to a change of Control, or predecessor or prior plan, including BMBCs Thrift and Savings Plan and the Companys annual bonus plan.
(c) Base Salary shall mean the total cash remuneration earned by the Employee on an annualized basis in all capacities with the Company and its Subsidiaries, including, without limitation, any amounts the payment of which has been deferred by the Employee, excluding only payments earned by or allocated to the Employee under the AIP.
(d) A Person shall be deemed the Beneficial Owner of any securities:
(i) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon
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the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided , however , that a Person shall not be deemed the Beneficial Owner of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange;
(ii) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has beneficial ownership of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations issued under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided , however , that a Person shall not be deemed the Beneficial Owner of any security under this subsection (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant
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to, and in accordance with, the applicable provisions of the General Rules and Regulations issued under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Persons Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subsection (ii) above) or disposing of any voting securities of BMBC; provided , however , that nothing in this Section 1(d) shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of any securities acquired through such Persons participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition.
(e) Board shall mean the board of directors of the Company or BMBC as the context of this Agreement indicates.
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(f) Change of Control shall be deemed to have taken place if (i) any Person (except BMBC, any Subsidiary of BMBC, any employee benefit plan of BMBC or the Company, any Person or entity organized, appointed or established by BMBC or any Subsidiary of BMBC for or pursuant to the terms of any such employee benefit plan) together with all Affiliates and Associates of such Person, shall become the Beneficial Owner in the aggregate of 25% or more of the common stock of BMBC then outstanding, or (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board of BMBC or the Company cease, for any reason, to constitute a majority thereof, unless the election, or the nomination for election by BMBCs or the Companys shareholders, as the case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors in office at the time of such election or nomination, who were directors at the beginning of such period.
(g) Common Stock shall mean the outstanding common stock of BMBC.
(h) Pension Plan shall mean the BMBC non-contributory pension plan and the amended pension plan which covers eligible employees of the Company.
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(i) Person shall mean any individual, firm, corporation, partnership or other entity.
(j) Stock Plan shall mean (i) BMBCs 1986 Stock Option and Stock Appreciation Rights Plan, as amended and restated; (ii) BMBCs 1998 Stock Option Plan; and (iii) any other stock option plan, stock option and stock appreciation rights plan, stock bonus plan, stock grant plan, or similar benefit plan established by BMBC and which exists for the benefit of the Employee at the time of a Change in Control.
(k) Subsidiary shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations issued under the Exchange Act.
(l) Termination Date shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be.
(m) Termination of Employment shall mean the termination of the Employees actual employment relationship with the Company.
(n) Termination upon a Change of Control shall mean a Termination of Employment upon or within two (2) years after a Change of Control either:
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(i) initiated by the Company for any reason other than (x) the Employees continuous illness, injury or incapacity for a period of six consecutive months or (y) for cause, which shall mean misappropriation of funds, habitual insobriety, substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the performance of his/her duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries or BMBC and its Subsidiaries taken as a whole; or
(ii) initiated by the Employee following one or more of the following occurrences:
(A) a significant reduction by the Company or BMBC (if the Employee is an officer of BMBC) of the authority, duties or responsibilities of the Employee immediately prior to the Change of Control;
(B) any removal of the Employee from his/her officer position with BMBC, the Company and its Subsidiaries held by him/her immediately prior to the Change of Control, except in connection with promotions to higher office;
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(C) a reduction by the Company in the Employees Base Salary as in effect immediately prior to the Change of Control;
(D) revocation or any modification of the AIP or Stock Plan, or any action taken pursuant to the terms of either plan, which materially (x) reduces the opportunity to receive compensation under any or both of such plans of equivalent amounts received by the Employee during the two (2) fiscal years immediately preceding the Change of Control, subject to the right of the Boards of Directors of BMBC or the Company, as appropriate, to establish in a manner consistent with past practice, prior to the Change of Control, reasonable goals under the AIP or Stock Plan, (y) reduces the compensation payable to the Employee under either or both of such plans but which does not effect comparable reductions in the compensation payable to the other participants in such plans, or (z) increases
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the compensation payable to other participants in either or both of such plans but which does not effect corresponding increases in the amount of compensation payable to the Employee;
(E) termination or modification of BMBCs Pension Plan or Supplemental Employee Retirement Plan, in each case as such plans are in effect immediately prior to the Change of Control, which materially reduces (x) the retirement benefits provided by such plans, or (y) the funding thereof provided by the Pension Plan or by any trust established by BMBC to fund benefits provided by the Supplemental Employee Retirement Plan;
(F) a transfer of the Employee, without his/her express written consent, to a location which is outside the Greater Philadelphia area (or the general area in which his/her principal place of business immediately preceding the Change of Control may be located at such time, if other than Bryn Mawr, Pennsylvania), or which is otherwise an unreasonable commuting distance from the Employees principal residence at the date of the Change of Control;
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(G) the Employee being required to undertake business travel to an extent substantially greater than the Employees business travel obligations immediately prior to the Change of Control; or
(H) any failure of the Company to comply with and satisfy Section 13 of this Agreement.
2. Notice of Termination . Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a Notice of Termination means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employees employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice).
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3. Severance Compensation upon Termination . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall pay to the Employee, within fifteen (15) days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in paragraph (b) of Section 11 hereof cannot be completed within fifteen (15) days) an amount in cash equal to three (3) times the sum of the Employees Base Salary in effect either immediately prior to the Termination of Employment or immediately prior to the Change of Control, whichever is higher.
4. Other Payments . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall:
(a) pay to the Employee within fifteen (15) days after the Termination date:
(i) unless the Employee has exercised such options, an amount equal to the excess, if any, of the aggregate fair market value of the shares of BMBCs Common Stock subject to all stock options outstanding and unexercised as of the Termination Date, whether vested or unvested, granted to the Employee under the Stock Plan, over the aggregate
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exercise price of all such stock options. For purposes of this paragraph, fair market value shall mean the highest of (x) the closing price of BMBCs Common Stock on the last business day the Common Stock was traded immediately preceding the Termination Date, if such Common Stock is publicly traded at such date, (y) if such Common Stock is not publicly traded at the Termination date, the value determined by an independent appraiser, such appraiser to be selected by the Employee and to be reasonably satisfactory to the Company (the fees and expenses of such appraiser to be borne by the Company), or (z) the highest per share price of BMBCs Common Stock paid (in connection with the Change of Control or at any time thereafter) by the Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control;
(ii) to the extent not theretofore paid, the Employees Base Salary through the Termination Date and a further amount equal to the Employees salary in lieu of his/her unused vacation pay, if any, both calculated at the salary rate in effect on the Termination Date, or, if higher, at the highest rate in effect at any time within the 90-day period preceding the Termination Date;
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(iii) to the extent not theretofore paid, an amount equal to all awards earned by the Employee under the AIP in respect of completed plan periods prior to the Termination Date (including all amounts the payment of which was previously deferred under such plans and interest thereon from the date of each such deferral to the date of payment at the maximum rate provided by such plans or any gain or increase in value obtained on investments in such plans), in each case without regard to any provisions set forth in such plans to the contrary. In the event that the Companys financial statements for any fiscal years, included in such plan periods, have not yet been completed at the Termination Date, the Companys shall pay to the Employee the amounts due hereunder as soon as possible thereafter;
(iv) payment in respect of the AIP for the uncompleted fiscal year during which Termination of Employment occurs determined by multiplying the amount determined in Section 3(a)(ii) by a fraction, the numerator of which shall be the number of days between the Termination Date and
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the last day of the last full fiscal year prior to the Termination Date and the denominator of which shall be Three Hundred Sixty Five (365); and
(b) to the extent permitted by applicable law, continue or cause to be continued until thirty-six (36) whole months after the Termination Date, on the cost-sharing basis in effect immediately prior to the Change of Control, medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company to the Employee immediately prior to the Change of Control; provided , however , that the obligation of the Company to provide such benefits shall cease at such time as the Employee is employed on a full-time basis by a Person not owned or controlled by the Employee that provides the Employee, on substantially the same cost-sharing basis between the Company and the Employee in effect immediately prior to the Change of Control, with medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company and its Subsidiaries to the Employee immediately prior to the Change of Control;
(c) for both vesting and benefit calculation purposes, credit the Employee with three (3) additional year of credited service (as defined in BMBCs Pension Plan) under BMBCs Pension Plan and Supplemental Employee Retirement Plan in addition to the years of credited service that would have otherwise been
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calculated by reference solely to the Termination Date, it being understood that benefits in respect of the three (3) additional year of credited service shall be paid to the Employee under the Supplemental Employee Retirement Plan, and that BMBC shall, to the extent necessary to provide the Employee the additional benefits intended hereby, amend the Supplemental Employee Retirement Plan or create such supplemental retirement plans as may be necessary; and
(d) pay for reasonable career counseling services provided by Manchester Partners International or any such equivalent agency satisfactory to both the Company and the Employee.
5. Establishment of Trust . Immediately upon a Change of Control as herein defined, the Company shall establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Companys discretion, as to be set forth in the agreement pursuant to which the trust fund will be established.
6. Enforcement .
(a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3
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and 4 hereof within the respective time periods provided therein, the Company shall pay to the Employee, in addition to the payment of any other sums provided in this Agreement, interest, compounded daily, on any amount remaining unpaid from the date payment is required under Section 3, 4 or 5, as appropriate, until paid to the Employee, at the prime rate published daily in the Wall Street Journal, each change in such rate to take effect on the effective date of the change in such prime rate.
(b) It is the intent of the parties hereto that the Employee not be required to incur any expenses associated with the enforcement of his/her rights under this Agreement by arbitration, litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement.
7. No Mitigation . The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise.
8. Nonexclusivity of Rights . Nothing in this Agreement
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shall prevent or limit the Employees continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by BMBC, the Company or any of its Subsidiaries or Affiliates and for which the Employee may qualify; provided , however , that if the Employee becomes entitled to and receives all of the payments provided for in this Agreement, the Employee agrees to waive his/her right to receive payments under any severance plan or program applicable to all employees of the Company.
9. No Set-Off . The Companys obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others and the Company hereby agrees not to exercise any such rights with respect to payment due the Employee pursuant to this Agreement.
10. Certain Reduction of Payments .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined as set forth herein that any payment or distribution by the Company to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this
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Agreement or otherwise (a Payment), would constitute an excess parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the Code), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as Agreement Payments) shall be reduced (but not below zero) to the Reduced Amount. The Reduced Amount shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 10, present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations to be made under this Section 10 shall be made, in writing, by PricewaterhouseCoopers LLP, or the Companys independent certified public accountant immediately prior to the Change of Control, if other than PricewaterhouseCoopers LLP, (the Accounting Firm), which firm shall provide its determinations and any supporting calculations in writing to both the Company and the Employee within ten (10) days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the
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Employee. The Employee shall in his/her sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 10. Within five (5) days after the Employees determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made (Overpayment) or that additional Agreement Payments which have not been made by the Company could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. Within two (2) years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the Federal Rate); provided , however , that no amount shall be payable by the
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Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest thereon at the Federal Rate.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in paragraphs (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses of any nature resulting from or relating to its determinations pursuant to paragraphs (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm.
11. Settlement of All Disputes .
(a) The Employee and the Company acknowledge that the Compensation Committee of the Companys Board intends to review and approve a schedule indicating a method of calculating certain payments to be made to the Employee hereunder in the event of a Termination upon a Change of Control. In the event that the compensation plans referred to herein change prior to a Change of
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Control, the Compensation Committee of the Companys Board may, prior to such Change of Control, revise the schedule to reflect such changes. The method of calculation set forth on such schedule, as so revised prior to a Change of Control, shall be followed by the parties hereto unless manifestly unfair to the Employee.
(b) In the event of any dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control, the Company shall appoint as the sole and exclusive arbiter of such dispute, controversy or claim, a committee composed of two persons who were members of the Companys Board at any time within five (5) years prior to the Change of Control (which persons may, but need not be, directors of the Company at the time of such dispute, controversy or claim); provided , however , that no person shall be eligible to serve thereon who (i) is at the Termination Date, or shall have been at any time within one year prior thereto, an executive officer of the Company, or (ii) shall be or have been at any time related in any manner to or otherwise affiliated with, or was first nominated by, the corporation, Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control. The decision of such committee and the award of any monetary judgment or other relief by such committee shall be final and binding upon the Employee and the Company, and shall not be subject to appeal. Judgment may be
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entered upon the decision and award of such committee by the Employee or the Company in any court of competent jurisdiction. The Company shall pay the persons selected pursuant to this subsection a reasonable fee for their services, and shall reimburse such persons for their expenses incurred in this capacity. In addition, the Company shall, to the maximum extent permitted by law, indemnify and hold harmless such persons of and from any and all claims, damages or expenses of any nature whatsoever relating to or arising from their activities in this capacity.
(c) In the event that the Company shall be unable to appoint the committee referred to in paragraph (b) above after good faith efforts to do so, or in the event that such committee cannot reach a unanimous agreement, any remaining dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control shall be settled by arbitration in the City of Philadelphia, in accordance with the commercial arbitration rules then in effect of the American Arbitration Association, before a panel of three (3) arbitrators, two (2) of whom shall be selected by the Company and the Employee, respectively, and the third of whom shall be selected by the other two arbitrators. Each arbitrator selected as provided herein is required to be or have been a director or an executive officer of a corporation whose shares of common stock were listed during at least one year of
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such service on the New York Stock Exchange or the American Stock Exchange or quoted on the National Association of Securities Dealers Automated Quotations System. Any award entered by the arbitrators shall be entered thereon by any party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration shall be paid by the Company.
(d) The party or parties challenging the right of the Employee to the benefits of this Agreement shall in all circumstances have the burden of proof.
12. Term of Agreement . The term of this Agreement shall be for three (3) years from the date hereof and shall automatically be extended for additional one-year periods unless written notice of termination of this Agreement is provided to the Employee by the Company at least one year prior to the expiration of the initial three (3) year term or any one-year renewal period; provided , however , that (i) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect for a period of two (2) years and until all of the obligations of the parties hereunder are satisfied or have expired, and (ii) this Agreement shall terminate if, prior to the Change of Control, the employment of the Employee with the Company or any of its Subsidiaries shall terminate for any reason whatsoever.
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13. Successor Company . The Company shall require any Person who acquires the majority of the Common Stock of the Company or BMBC or any successor or successors thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or BMBC, by agreement, in form and substance satisfactory to the Employee, to acknowledge expressly, in writing, that this Agreement is binding upon and enforceable against the Company or BMBC or any successor or successors thereto in accordance with the terms hereof and the instrument of transfer, and to become jointly and severally obligated with the Company to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform this Agreement if no such acquisition purchaser, merger consolidation, succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally.
14. Notice . All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or
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mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
Corporate Secretary
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, PA 19010
If to the Employee, to:
Frederick C. Peters, II
108 Browning Lane
Rosemont, PA 19010
or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service.
15. Governing Law . This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.
16. Contents of Agreement, Amendment and Assignment .
(a) This Agreement supersedes all prior agreements and
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sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Companys behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans (including without limitation the AIP and Stock Plan) under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Boards of BMBC or the Company.
(b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company.
(c) The Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by
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or on behalf of the Company (whether written or oral, and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement.
(d) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company.
17. Severability . If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver . No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at
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law or in equity shall be construed as a waiver thereof, including without limitation any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination upon a Change of Control pursuant to Section 1(n)(ii) of this Agreement.
19. Miscellaneous . All section headings in this Agreement are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written.
Attest: | THE BRYN MAWR TRUST COMPANY | |||||
[Seal] | ||||||
/s/ Sam Wasson |
By |
/s/ Robert L. Stevens |
||||
Secretary | Robert L. Stevens | |||||
Chairman | ||||||
|
/s/ Fredrick C. Peters |
|||||
Witness | Frederick C. Peters, II | |||||
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Exhibit 10.(M)
THE BRYN MAWR TRUST COMPANY
EXECUTIVE CHANGE-OF-CONTROL
AMENDED & RESTATED
SEVERANCE AGREEMENT
This Agreement made as of May 21, 2004, amends and restates the Agreement dated May 11, 1998, between The Bryn Mawr Trust Company, a Pennsylvania financial institution, subject to the provisions of the Pennsylvania Banking Code of 1965, as amended (the Company), and Alison E. Gers (the Employee).
WHEREAS, the Employee is presently employed by the Company as its Executive Vice President - Support Bank;
WHEREAS, the Company considers it essential to foster the employment of well qualified key management personnel, and, in this regard, the board of directors of the Company recognizes that, as is the case with many financial institutions, the possibility of a change of control of the Companys publicly held parent company, Bryn Mawr Bank Corporation, (BMBC) may exist and that such possibility, and the uncertainty and questions which it may raise among the Companys management, may result in the departure or distraction of key management personnel to the detriment of the Company and ultimately to the detriment of BMBC and its shareholders;
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WHEREAS, the Boards of directors of the Company and BMBC have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of the Companys management to their assigned duties, without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the BMBC, although no such change is now contemplated; and
WHEREAS, in order to induce the Employee, a key member of the Companys management, to remain in the employ of the Company, the Company agrees that the Employee shall receive the compensation and benefits set forth in this Agreement in the event his/her employment with the Company is terminated subsequent to a Change of Control (as defined in Section 1 hereof) of BMBC, as a cushion against the financial and career impact on the Employee of any such Change of Control;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions . For all purposes of this Agreement, the following terms shall have the meanings specified in this Section, unless the context clearly otherwise requires:
(a) Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations issued under the Securities Exchange Act of 1934, as amended (the Exchange Act).
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(b) AIP shall mean any Annual Incentive Plan of the Company, as in effect immediately prior to a change of Control, or predecessor or prior plan, including BMBCs Thrift and Savings Plan and the Companys annual bonus plan.
(c) Base Salary shall mean the total cash remuneration earned by the Employee on an annualized basis in all capacities with the Company and its Subsidiaries, including, without limitation, any amounts the payment of which has been deferred by the Employee, excluding only payments earned by or allocated to the Employee under the AIP.
(d) A Person shall be deemed the Beneficial Owner of any securities:
(i) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon
3
the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided , however , that a Person shall not be deemed the Beneficial Owner of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange;
(ii) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has beneficial ownership of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations issued under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided , however , that a Person shall not be deemed the Beneficial Owner of any security under this subsection (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant
4
to, and in accordance with, the applicable provisions of the General Rules and Regulations issued under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Persons Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subsection (ii) above) or disposing of any voting securities of BMBC; provided , however , that nothing in this Section 1(d) shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of any securities acquired through such Persons participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition.
(e) Board shall mean the board of directors of the Company or BMBC as the context of this Agreement indicates.
5
(f) Change of Control shall be deemed to have taken place if (i) any Person (except BMBC, any Subsidiary of BMBC, any employee benefit plan of BMBC or the Company, any Person or entity organized, appointed or established by BMBC or any Subsidiary of BMBC for or pursuant to the terms of any such employee benefit plan) together with all Affiliates and Associates of such Person, shall become the Beneficial Owner in the aggregate of 25% or more of the common stock of BMBC then outstanding, or (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board of BMBC or the Company cease, for any reason, to constitute a majority thereof, unless the election, or the nomination for election by BMBCs or the Companys shareholders, as the case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors in office at the time of such election or nomination, who were directors at the beginning of such period.
(g) Common Stock shall mean the outstanding common stock of BMBC.
(h) Pension Plan shall mean the BMBC non-contributory pension plan and the amended pension plan which covers eligible employees of the Company.
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(i) Person shall mean any individual, firm, corporation, partnership or other entity.
(j) Stock Plan shall mean (i) BMBCs 1986 Stock Option and Stock Appreciation Rights Plan, as amended and restated; (ii) BMBCs 1998 Stock Option Plan; and (iii) any other stock option plan, stock option and stock appreciation rights plan, stock bonus plan, stock grant plan, or similar benefit plan established by BMBC and which exists for the benefit of the Employee at the time of a Change in Control.
(k) Subsidiary shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations issued under the Exchange Act.
(l) Termination Date shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be.
(m) Termination of Employment shall mean the termination of the Employees actual employment relationship with the Company.
(n) Termination upon a Change of Control shall mean a Termination of Employment upon or within two (2) years after a Change of Control either:
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(i) initiated by the Company for any reason other than (x) the Employees continuous illness, injury or incapacity for a period of six consecutive months or (y) for cause, which shall mean misappropriation of funds, habitual insobriety, substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the performance of his/her duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries or BMBC and its Subsidiaries taken as a whole; or
(ii) initiated by the Employee following one or more of the following occurrences:
(A) a significant reduction by the Company or BMBC (if the Employee is an officer of BMBC) of the authority, duties or responsibilities of the Employee immediately prior to the Change of Control;
(B) any removal of the Employee from his/her officer position with BMBC, the Company and its Subsidiaries held by him/her immediately prior to the Change of Control, except in connection with promotions to higher office;
8
(C) a reduction by the Company in the Employees Base Salary as in effect immediately prior to the Change of Control;
(D) revocation or any modification of the AIP or Stock Plan, or any action taken pursuant to the terms of either plan, which materially (x) reduces the opportunity to receive compensation under any or both of such plans of equivalent amounts received by the Employee during the three (3) fiscal years immediately preceding the Change of Control, subject to the right of the Boards of Directors of BMBC or the Company, as appropriate, to establish in a manner consistent with past practice, prior to the Change of Control, reasonable goals under the AIP or Stock Plan, (y) reduces the compensation payable to the Employee under either or both of such plans but which does not effect comparable reductions in the compensation payable to the other participants in such plans, or (z) increases
9
the compensation payable to other participants in either or both of such plans but which does not effect corresponding increases in the amount of compensation payable to the Employee;
(E) termination or modification of BMBCs Pension Plan or Supplemental Employee Retirement Plan, in each case as such plans are in effect immediately prior to the Change of Control, which materially reduces (x) the retirement benefits provided by such plans, or (y) the funding thereof provided by the Pension Plan or by any trust established by BMBC to fund benefits provided by the Supplemental Employee Retirement Plan;
(F) a transfer of the Employee, without his/her express written consent, to a location which is outside the Greater Philadelphia area (or the general area in which his/her principal place of business immediately preceding the Change of Control may be located at such time, if other than Bryn Mawr, Pennsylvania), or which is otherwise an unreasonable commuting distance from the Employees principal residence at the date of the Change of Control;
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(G) the Employee being required to undertake business travel to an extent substantially greater than the Employees business travel obligations immediately prior to the Change of Control; or
(H) any failure of the Company to comply with and satisfy Section 13 of this Agreement.
2. Notice of Termination . Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a Notice of Termination means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employees employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice).
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3. Severance Compensation upon Termination . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall pay to the Employee, within fifteen (15) days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in paragraph (b) of Section 11 hereof cannot be completed within fifteen (15) days) an amount in cash equal to three (3) times the sum of the Employees Base Salary in effect either immediately prior to the Termination of Employment or immediately prior to the Change of Control, whichever is higher.
4. Other Payments . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall:
(a) pay to the Employee within fifteen (15) days after the Termination date:
(i) unless the Employee has exercised such options, an amount equal to the excess, if any, of the aggregate fair market value of the shares of BMBCs Common Stock subject to all stock options outstanding and unexercised as of the Termination Date, whether vested or unvested, granted to the Employee under the Stock Plan, over the aggregate
12
exercise price of all such stock options. For purposes of this paragraph, fair market value shall mean the highest of (x) the closing price of BMBCs Common Stock on the last business day the Common Stock was traded immediately preceding the Termination Date, if such Common Stock is publicly traded at such date, (y) if such Common Stock is not publicly traded at the Termination date, the value determined by an independent appraiser, such appraiser to be selected by the Employee and to be reasonably satisfactory to the Company (the fees and expenses of such appraiser to be borne by the Company), or (z) the highest per share price of BMBCs Common Stock paid (in connection with the Change of Control or at any time thereafter) by the Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control;
(ii) to the extent not theretofore paid, the Employees Base Salary through the Termination Date and a further amount equal to the Employees salary in lieu of his/her unused vacation pay, if any, both calculated at the salary rate in effect on the Termination Date, or, if higher, at the highest rate in effect at any time within the 90-day period preceding the Termination Date;
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(iii) to the extent not theretofore paid, an amount equal to all awards earned by the Employee under the AIP in respect of completed plan periods prior to the Termination Date (including all amounts the payment of which was previously deferred under such plans and interest thereon from the date of each such deferral to the date of payment at the maximum rate provided by such plans or any gain or increase in value obtained on investments in such plans), in each case without regard to any provisions set forth in such plans to the contrary. In the event that the Companys financial statements for any fiscal years, included in such plan periods, have not yet been completed at the Termination Date, the Companys shall pay to the Employee the amounts due hereunder as soon as possible thereafter;
(iv) payment in respect of the AIP for the uncompleted fiscal year during which Termination of Employment occurs determined by multiplying the amount determined in Section 3(a)(ii) by a fraction, the numerator of which shall be the number of days between the Termination Date and
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the last day of the last full fiscal year prior to the Termination Date and the denominator of which shall be Three Hundred Sixty Five (365); and
(b) to the extent permitted by applicable law, continue or cause to be continued until thirty-six (36) whole months after the Termination Date, on the cost-sharing basis in effect immediately prior to the Change of Control, medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company to the Employee immediately prior to the Change of Control; provided , however , that the obligation of the Company to provide such benefits shall cease at such time as the Employee is employed on a full-time basis by a Person not owned or controlled by the Employee that provides the Employee, on substantially the same cost-sharing basis between the Company and the Employee in effect immediately prior to the Change of Control, with medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company and its Subsidiaries to the Employee immediately prior to the Change of Control;
(c) for both vesting and benefit calculation purposes, credit the Employee with three (3) additional year of credited service (as defined in BMBCs Pension Plan) under BMBCs Pension Plan and Supplemental Employee Retirement Plan in addition to the years of credited service that would have otherwise been
15
calculated by reference solely to the Termination Date, it being understood that benefits in respect of the three (3) additional year of credited service shall be paid to the Employee under the Supplemental Employee Retirement Plan, and that BMBC shall, to the extent necessary to provide the Employee the additional benefits intended hereby, amend the Supplemental Employee Retirement Plan or create such supplemental retirement plans as may be necessary; and
(d) pay for reasonable career counseling services provided by Manchester Partners International or any such equivalent agency satisfactory to both the Company and the Employee.
5. Establishment of Trust . Immediately upon a Change of Control as herein defined, the Company shall establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Companys discretion, as to be set forth in the agreement pursuant to which the trust fund will be established.
6. Enforcement .
(a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3
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and 4 hereof within the respective time periods provided therein, the Company shall pay to the Employee, in addition to the payment of any other sums provided in this Agreement, interest, compounded daily, on any amount remaining unpaid from the date payment is required under Section 3, 4 or 5, as appropriate, until paid to the Employee, at the prime rate published daily in the Wall Street Journal, each change in such rate to take effect on the effective date of the change in such prime rate.
(b) It is the intent of the parties hereto that the Employee not be required to incur any expenses associated with the enforcement of his/her rights under this Agreement by arbitration, litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement.
7. No Mitigation . The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise.
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8. Nonexclusivity of Rights . Nothing in this Agreement shall prevent or limit the Employees continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by BMBC, the Company or any of its Subsidiaries or Affiliates and for which the Employee may qualify; provided , however , that if the Employee becomes entitled to and receives all of the payments provided for in this Agreement, the Employee agrees to waive his/her right to receive payments under any severance plan or program applicable to all employees of the Company.
9. No Set-Off . The Companys obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others and the Company hereby agrees not to exercise any such rights with respect to payment due the Employee pursuant to this Agreement.
10. Certain Reduction of Payments .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined as set forth herein that any payment or distribution by the Company to
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or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a Payment), would constitute an excess parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the Code), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as Agreement Payments) shall be reduced (but not below zero) to the Reduced Amount. The Reduced Amount shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 10, present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations to be made under this Section 10 shall be made, in writing, KPMG LLP, or the Companys independent certified public accountant immediately prior to the Change of Control, if other than KPMG LLP, (the Accounting Firm), which firm shall provide its determinations and any supporting calculations in writing to both the Company and the Employee within ten (10)
19
days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee shall in his/her sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 10. Within five (5) days after the Employees determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made (Overpayment) or that additional Agreement Payments which have not been made by the Company could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. Within two (2) years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided
20
for in Section 7872(f)(2) of the Code (the Federal Rate); provided , however , that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest thereon at the Federal Rate.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in paragraphs (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses of any nature resulting from or relating to its determinations pursuant to paragraphs (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm.
11. Settlement of All Disputes .
(a) The Employee and the Company acknowledge that the Compensation Committee of the Companys Board intends to review and approve a schedule indicating a method of calculating certain payments to be made to the Employee hereunder in the event of a Termination upon a Change of Control. In the event that the compensation plans referred to herein change prior to a Change of Control, the Compensation Committee of the Companys Board may,
21
prior to such Change of Control, revise the schedule to reflect such changes. The method of calculation set forth on such schedule, as so revised prior to a Change of Control, shall be followed by the parties hereto unless manifestly unfair to the Employee.
(b) In the event of any dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control, the Company shall appoint as the sole and exclusive arbiter of such dispute, controversy or claim, a committee composed of two persons who were members of the Companys Board at any time within five (5) years prior to the Change of Control (which persons may, but need not be, directors of the Company at the time of such dispute, controversy or claim); provided , however , that no person shall be eligible to serve thereon who (i) is at the Termination Date, or shall have been at any time within one year prior thereto, an executive officer of the Company, or (ii) shall be or have been at any time related in any manner to or otherwise affiliated with, or was first nominated by, the corporation, Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control. The decision of such committee and the award of any monetary judgment or other relief by such committee shall be final and binding upon the Employee and the Company, and shall not be subject to appeal. Judgment may be entered upon the decision and award of such committee by the
22
Employee or the Company in any court of competent jurisdiction. The Company shall pay the persons selected pursuant to this subsection a reasonable fee for their services, and shall reimburse such persons for their expenses incurred in this capacity. In addition, the Company shall, to the maximum extent permitted by law, indemnify and hold harmless such persons of and from any and all claims, damages or expenses of any nature whatsoever relating to or arising from their activities in this capacity.
(c) In the event that the Company shall be unable to appoint the committee referred to in paragraph (b) above after good faith efforts to do so, or in the event that such committee cannot reach a unanimous agreement, any remaining dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control shall be settled by arbitration in the City of Philadelphia, in accordance with the commercial arbitration rules then in effect of the American Arbitration Association, before a panel of three (3) arbitrators, two (2) of whom shall be selected by the Company and the Employee, respectively, and the third of whom shall be selected by the other two arbitrators. Each arbitrator selected as provided herein is required to be or have been a director or an executive officer of a corporation whose shares of common stock were listed during at least one year of such service on the New York Stock Exchange or the American Stock
23
Exchange or quoted on the National Association of Securities Dealers Automated Quotations System. Any award entered by the arbitrators shall be entered thereon by any party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration shall be paid by the Company.
(d) The party or parties challenging the right of the Employee to the benefits of this Agreement shall in all circumstances have the burden of proof.
12. Term of Agreement . The term of this Agreement shall be for three (3) years from the date hereof and shall automatically be extended for additional one-year periods unless written notice of termination of this Agreement is provided to the Employee by the Company at least one year prior to the expiration of the initial three (3) year term or any one-year renewal period; provided , however , that (i) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect for a period of two (2) years and until all of the obligations of the parties hereunder are satisfied or have expired, and (ii) this Agreement shall terminate if, prior to the Change of Control, the employment of the Employee with the Company or any of its Subsidiaries shall terminate for any reason whatsoever.
24
13. Successor Company . The Company shall require any Person who acquires the majority of the Common Stock of the Company or BMBC or any successor or successors thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or BMBC, by agreement, in form and substance satisfactory to the Employee, to acknowledge expressly, in writing, that this Agreement is binding upon and enforceable against the Company or BMBC or any successor or successors thereto in accordance with the terms hereof and the instrument of transfer, and to become jointly and severally obligated with the Company to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform this Agreement if no such acquisition purchaser, merger consolidation, succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally.
14. Notice . All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested,
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or by overnight express courier service, as follows:
If to the Company, to:
Corporate Secretary
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, PA 19010
If to the Employee, to:
1028 Springhouse Drive
Ambler, PA 19002
or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service.
15. Governing Law . This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.
16. Contents of Agreement, Amendment and Assignment .
(a) This Agreement supersedes all prior agreements and sets forth the entire understanding between the parties hereto
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with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Companys behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans (including without limitation the AIP and Stock Plan) under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Boards of BMBC or the Company.
(b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company.
(c) The Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of the Company (whether written or oral, and whether
27
or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement.
(d) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company.
17. Severability . If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver . No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof,
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including without limitation any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination upon a Change of Control pursuant to Section 1(n)(ii) of this Agreement.
19. Miscellaneous . All section headings in this Agreement are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written.
Attest: | THE BRYN MAWR TRUST COMPANY | |||
[Seal] | ||||
/s/ Robert J. Ricciardi |
By |
/s/ Frederick_C. Peters |
||
Secretary | Frederick C. Peters | |||
President | ||||
/s/ Diane Mc Donald |
/s/ Alison E. Gers |
|||
Witness | Employee |
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Exhibit 10.(N)
THE BRYN MAWR TRUST COMPANY
EXECUTIVE CHANGE-OF-CONTROL
AMENDED & RESTATED
SEVERANCE AGREEMENT
This Agreement made as of May 21, 2004, amends and restates the Agreement dated February 20, 1998, between The Bryn Mawr Trust Company, a Pennsylvania financial institution, subject to the provisions of the Pennsylvania Banking Code of 1965, as amended (the Company), and Joseph G. Keefer (the Employee).
WHEREAS, the Employee is presently employed by the Company as its Executive Vice President and Chief Lending Officer Credit Division;
WHEREAS, the Company considers it essential to foster the employment of well qualified key management personnel, and, in this regard, the board of directors of the Company recognizes that, as is the case with many financial institutions, the possibility of a change of control of the Companys publicly held parent company, Bryn Mawr Bank Corporation, (BMBC) may exist and that such possibility, and the uncertainty and questions which it may raise among the Companys management, may result in the departure or distraction of key management personnel to the detriment of the Company and ultimately to the detriment of BMBC and its shareholders;
1
WHEREAS, the Boards of directors of the Company and BMBC have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of the Companys management to their assigned duties, without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the BMBC, although no such change is now contemplated; and
WHEREAS, in order to induce the Employee, a key member of the Companys management, to remain in the employ of the Company, the Company agrees that the Employee shall receive the compensation and benefits set forth in this Agreement in the event his/her employment with the Company is terminated subsequent to a Change of Control (as defined in Section 1 hereof) of BMBC, as a cushion against the financial and career impact on the Employee of any such Change of Control;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions . For all purposes of this Agreement, the following terms shall have the meanings specified in this Section, unless the context clearly otherwise requires:
2
(a) Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations issued under the Securities Exchange Act of 1934, as amended (the Exchange Act).
(b) AIP shall mean any Annual Incentive Plan of the Company, as in effect immediately prior to a change of Control, or predecessor or prior plan, including BMBCs Thrift and Savings Plan and the Companys annual bonus plan.
(c) Base Salary shall mean the total cash remuneration earned by the Employee on an annualized basis in all capacities with the Company and its Subsidiaries, including, without limitation, any amounts the payment of which has been deferred by the Employee, excluding only payments earned by or allocated to the Employee under the AIP.
(d) A Person shall be deemed the Beneficial Owner of any securities:
(i) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon
3
the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided , however , that a Person shall not be deemed the Beneficial Owner of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange;
(ii) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has beneficial ownership of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations issued under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided , however , that a Person shall not be deemed the Beneficial Owner of any security under this subsection (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant
4
to, and in accordance with, the applicable provisions of the General Rules and Regulations issued under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Persons Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subsection (ii) above) or disposing of any voting securities of BMBC; provided , however , that nothing in this Section 1(d) shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of any securities acquired through such Persons participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition.
(e) Board shall mean the board of directors of the Company or BMBC as the context of this Agreement indicates.
5
(f) Change of Control shall be deemed to have taken place if (i) any Person (except BMBC, any Subsidiary of BMBC, any employee benefit plan of BMBC or the Company, any Person or entity organized, appointed or established by BMBC or any Subsidiary of BMBC for or pursuant to the terms of any such employee benefit plan) together with all Affiliates and Associates of such Person, shall become the Beneficial Owner in the aggregate of 25% or more of the common stock of BMBC then outstanding, or (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board of BMBC or the Company cease, for any reason, to constitute a majority thereof, unless the election, or the nomination for election by BMBCs or the Companys shareholders, as the case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors in office at the time of such election or nomination, who were directors at the beginning of such period.
(g) Common Stock shall mean the outstanding common stock of BMBC.
(h) Pension Plan shall mean the BMBC non-contributory pension plan and the amended pension plan which covers eligible employees of the Company.
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(i) Person shall mean any individual, firm, corporation, partnership or other entity.
(j) Stock Plan shall mean (i) BMBCs 1986 Stock Option and Stock Appreciation Rights Plan, as amended and restated; (ii) BMBCs 1998 Stock Option Plan; and (iii) any other stock option plan, stock option and stock appreciation rights plan, stock bonus plan, stock grant plan, or similar benefit plan established by BMBC and which exists for the benefit of the Employee at the time of a Change in Control.
(k) Subsidiary shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations issued under the Exchange Act.
(l) Termination Date shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be.
(m) Termination of Employment shall mean the termination of the Employees actual employment relationship with the Company.
(n) Termination upon a Change of Control shall mean a Termination of Employment upon or within two (2) years after a Change of Control either:
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(i) initiated by the Company for any reason other than (x) the Employees continuous illness, injury or incapacity for a period of six consecutive months or (y) for cause, which shall mean misappropriation of funds, habitual insobriety, substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the performance of his/her duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries or BMBC and its Subsidiaries taken as a whole; or
(ii) initiated by the Employee following one or more of the following occurrences:
(A) a significant reduction by the Company or BMBC (if the Employee is an officer of BMBC) of the authority, duties or responsibilities of the Employee immediately prior to the Change of Control;
(B) any removal of the Employee from his/her officer position with BMBC, the Company and its Subsidiaries held by him/her immediately prior to the Change of Control, except in connection with promotions to higher office;
8
(C) a reduction by the Company in the Employees Base Salary as in effect immediately prior to the Change of Control;
(D) revocation or any modification of the AIP or Stock Plan, or any action taken pursuant to the terms of either plan, which materially (x) reduces the opportunity to receive compensation under any or both of such plans of equivalent amounts received by the Employee during the three (3) fiscal years immediately preceding the Change of Control, subject to the right of the Boards of Directors of BMBC or the Company, as appropriate, to establish in a manner consistent with past practice, prior to the Change of Control, reasonable goals under the AIP or Stock Plan, (y) reduces the compensation payable to the Employee under either or both of such plans but which does not effect comparable reductions in the compensation payable to the other participants in such plans, or (z) increases
9
the compensation payable to other participants in either or both of such plans but which does not effect corresponding increases in the amount of compensation payable to the Employee;
(E) termination or modification of BMBCs Pension Plan or Supplemental Employee Retirement Plan, in each case as such plans are in effect immediately prior to the Change of Control, which materially reduces (x) the retirement benefits provided by such plans, or (y) the funding thereof provided by the Pension Plan or by any trust established by BMBC to fund benefits provided by the Supplemental Employee Retirement Plan;
(F) a transfer of the Employee, without his/her express written consent, to a location which is outside the Greater Philadelphia area (or the general area in which his/her principal place of business immediately preceding the Change of Control may be located at such time, if other than Bryn Mawr, Pennsylvania), or which is otherwise an unreasonable commuting distance from the Employees principal residence at the date of the Change of Control;
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(G) the Employee being required to undertake business travel to an extent substantially greater than the Employees business travel obligations immediately prior to the Change of Control; or
(H) any failure of the Company to comply with and satisfy Section 13 of this Agreement.
2. Notice of Termination . Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a Notice of Termination means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employees employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice).
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3. Severance Compensation upon Termination . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall pay to the Employee, within fifteen (15) days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in paragraph (b) of Section 11 hereof cannot be completed within fifteen (15) days) an amount in cash equal to three (3) times the sum of the Employees Base Salary in effect either immediately prior to the Termination of Employment or immediately prior to the Change of Control, whichever is higher.
4. Other Payments . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall:
(a) pay to the Employee within fifteen (15) days after the Termination date:
(i) unless the Employee has exercised such options, an amount equal to the excess, if any, of the aggregate fair market value of the shares of BMBCs Common Stock subject to all stock options outstanding and unexercised as of the Termination Date, whether vested or unvested, granted to the Employee under the Stock Plan, over the aggregate
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exercise price of all such stock options. For purposes of this paragraph, fair market value shall mean the highest of (x) the closing price of BMBCs Common Stock on the last business day the Common Stock was traded immediately preceding the Termination Date, if such Common Stock is publicly traded at such date, (y) if such Common Stock is not publicly traded at the Termination date, the value determined by an independent appraiser, such appraiser to be selected by the Employee and to be reasonably satisfactory to the Company (the fees and expenses of such appraiser to be borne by the Company), or (z) the highest per share price of BMBCs Common Stock paid (in connection with the Change of Control or at any time thereafter) by the Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control;
(ii) to the extent not theretofore paid, the Employees Base Salary through the Termination Date and a further amount equal to the Employees salary in lieu of his/her unused vacation pay, if any, both calculated at the salary rate in effect on the Termination Date, or, if higher, at the highest rate in effect at any time within the 90-day period preceding the Termination Date;
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(iii) to the extent not theretofore paid, an amount equal to all awards earned by the Employee under the AIP in respect of completed plan periods prior to the Termination Date (including all amounts the payment of which was previously deferred under such plans and interest thereon from the date of each such deferral to the date of payment at the maximum rate provided by such plans or any gain or increase in value obtained on investments in such plans), in each case without regard to any provisions set forth in such plans to the contrary. In the event that the Companys financial statements for any fiscal years, included in such plan periods, have not yet been completed at the Termination Date, the Companys shall pay to the Employee the amounts due hereunder as soon as possible thereafter;
(iv) payment in respect of the AIP for the uncompleted fiscal year during which Termination of Employment occurs determined by multiplying the amount determined in Section 3(a)(ii) by a fraction, the numerator of which shall be the number of days between the Termination Date and
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the last day of the last full fiscal year prior to the Termination Date and the denominator of which shall be Three Hundred Sixty Five (365); and
(b) to the extent permitted by applicable law, continue or cause to be continued until thirty-six (36) whole months after the Termination Date, on the cost-sharing basis in effect immediately prior to the Change of Control, medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company to the Employee immediately prior to the Change of Control; provided , however , that the obligation of the Company to provide such benefits shall cease at such time as the Employee is employed on a full-time basis by a Person not owned or controlled by the Employee that provides the Employee, on substantially the same cost-sharing basis between the Company and the Employee in effect immediately prior to the Change of Control, with medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company and its Subsidiaries to the Employee immediately prior to the Change of Control;
(c) for both vesting and benefit calculation purposes, credit the Employee with three (3) additional year of credited service (as defined in BMBCs Pension Plan) under BMBCs Pension Plan and Supplemental Employee Retirement Plan in addition to the years of credited service that would have otherwise been
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calculated by reference solely to the Termination Date, it being understood that benefits in respect of the three (3) additional year of credited service shall be paid to the Employee under the Supplemental Employee Retirement Plan, and that BMBC shall, to the extent necessary to provide the Employee the additional benefits intended hereby, amend the Supplemental Employee Retirement Plan or create such supplemental retirement plans as may be necessary; and
(d) pay for reasonable career counseling services provided by Manchester Partners International or any such equivalent agency satisfactory to both the Company and the Employee.
5. Establishment of Trust . Immediately upon a Change of Control as herein defined, the Company shall establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Companys discretion, as to be set forth in the agreement pursuant to which the trust fund will be established.
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6. Enforcement .
(a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3 and 4 hereof within the respective time periods provided therein, the Company shall pay to the Employee, in addition to the payment of any other sums provided in this Agreement, interest, compounded daily, on any amount remaining unpaid from the date payment is required under Section 3, 4 or 5, as appropriate, until paid to the Employee, at the prime rate published daily in the Wall Street Journal, each change in such rate to take effect on the effective date of the change in such prime rate.
(b) It is the intent of the parties hereto that the Employee not be required to incur any expenses associated with the enforcement of his/her rights under this Agreement by arbitration, litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement.
7. No Mitigation . The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise.
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8. Nonexclusivity of Rights . Nothing in this Agreement shall prevent or limit the Employees continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by BMBC, the Company or any of its Subsidiaries or Affiliates and for which the Employee may qualify; provided , however , that if the Employee becomes entitled to and receives all of the payments provided for in this Agreement, the Employee agrees to waive his/her right to receive payments under any severance plan or program applicable to all employees of the Company.
9. No Set-Off . The Companys obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others and the Company hereby agrees not to exercise any such rights with respect to payment due the Employee pursuant to this Agreement.
10. Certain Reduction of Payments .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined as set forth herein that any payment or distribution by the Company to
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or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a Payment), would constitute an excess parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the Code), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as Agreement Payments) shall be reduced (but not below zero) to the Reduced Amount. The Reduced Amount shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 10, present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations to be made under this Section 10 shall be made, in writing, by KPMG LLP, or the Companys independent certified public accountant immediately prior to the Change of Control, if other than KPMG LLP, (the Accounting Firm), which firm shall provide its determinations and any supporting calculations in writing to both the Company and the Employee within ten (10)
19
days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee shall in his/her sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 10. Within five (5) days after the Employees determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made (Overpayment) or that additional Agreement Payments which have not been made by the Company could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. Within two (2) years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided
20
for in Section 7872(f)(2) of the Code (the Federal Rate); provided , however , that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest thereon at the Federal Rate.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in paragraphs (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses of any nature resulting from or relating to its determinations pursuant to paragraphs (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm.
11. Settlement of All Disputes .
(a) The Employee and the Company acknowledge that the Compensation Committee of the Companys Board intends to review and approve a schedule indicating a method of calculating certain payments to be made to the Employee hereunder in the event of a
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Termination upon a Change of Control. In the event that the compensation plans referred to herein change prior to a Change of Control, the Compensation Committee of the Companys Board may, prior to such Change of Control, revise the schedule to reflect such changes. The method of calculation set forth on such schedule, as so revised prior to a Change of Control, shall be followed by the parties hereto unless manifestly unfair to the Employee.
(c) In the event of any dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control, the Company shall appoint as the sole and exclusive arbiter of such dispute, controversy or claim, a committee composed of two persons who were members of the Companys Board at any time within five (5) years prior to the Change of Control (which persons may, but need not be, directors of the Company at the time of such dispute, controversy or claim); provided , however , that no person shall be eligible to serve thereon who (i) is at the Termination Date, or shall have been at any time within one year prior thereto, an executive officer of the Company, or (ii) shall be or have been at any time related in any manner to or otherwise affiliated with, or was first nominated by, the corporation, Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control. The decision of such committee and the award of any monetary judgment or other relief by such
22
committee shall be final and binding upon the Employee and the Company, and shall not be subject to appeal. Judgment may be entered upon the decision and award of such committee by the Employee or the Company in any court of competent jurisdiction. The Company shall pay the persons selected pursuant to this subsection a reasonable fee for their services, and shall reimburse such persons for their expenses incurred in this capacity. In addition, the Company shall, to the maximum extent permitted by law, indemnify and hold harmless such persons of and from any and all claims, damages or expenses of any nature whatsoever relating to or arising from their activities in this capacity.
(c) In the event that the Company shall be unable to appoint the committee referred to in paragraph (b) above after good faith efforts to do so, or in the event that such committee cannot reach a unanimous agreement, any remaining dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control shall be settled by arbitration in the City of Philadelphia, in accordance with the commercial arbitration rules then in effect of the American Arbitration Association, before a panel of three (3) arbitrators, two (2) of whom shall be selected by the Company and the Employee, respectively, and the third of whom shall be selected by the other two arbitrators. Each arbitrator selected as provided herein is required to be or have
23
been a director or an executive officer of a corporation whose shares of common stock were listed during at least one year of such service on the New York Stock Exchange or the American Stock Exchange or quoted on the National Association of Securities Dealers Automated Quotations System. Any award entered by the arbitrators shall be entered thereon by any party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration shall be paid by the Company.
(d) The party or parties challenging the right of the Employee to the benefits of this Agreement shall in all circumstances have the burden of proof.
12. Term of Agreement . The term of this Agreement shall be for three (3) years from the date hereof and shall automatically be extended for additional one-year periods unless written notice of termination of this Agreement is provided to the Employee by the Company at least one year prior to the expiration of the initial three (3) year term or any one-year renewal period; provided , however , that (i) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect for a period of two (2) years and until all of the obligations of the parties hereunder are satisfied or have expired, and (ii) this
24
Agreement shall terminate if, prior to the Change of Control, the employment of the Employee with the Company or any of its Subsidiaries shall terminate for any reason whatsoever.
13. Successor Company . The Company shall require any Person who acquires the majority of the Common Stock of the Company or BMBC or any successor or successors thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or BMBC, by agreement, in form and substance satisfactory to the Employee, to acknowledge expressly, in writing, that this Agreement is binding upon and enforceable against the Company or BMBC or any successor or successors thereto in accordance with the terms hereof and the instrument of transfer, and to become jointly and severally obligated with the Company to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform this Agreement if no such acquisition purchaser, merger consolidation, succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally.
14. Notice . All notices and other communications required
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or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
Corporate Secretary
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, PA 19010
If to the Employee, to:
835 Cottonwood Drive
Malvern, PA 19355
or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service.
15. Governing Law . This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.
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16. Contents of Agreement, Amendment and Assignment .
(a) This Agreement supersedes all prior agreements and sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Companys behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans (including without limitation the AIP and Stock Plan) under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Boards of BMBC or the Company.
(b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company.
(c) The Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or oral statements relating to personnel policies and procedures. Such
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manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of the Company (whether written or oral, and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement.
(d) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company.
17. Severability . If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver . No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at
28
law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including without limitation any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination upon a Change of Control pursuant to Section 1(n)(ii) of this Agreement.
19. Miscellaneous . All section headings in this Agreement are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written.
Attest: | THE BRYN MAWR TRUST COMPANY | |||||
[Seal] | ||||||
/s/ Robert J. Ricciardi |
By |
/s/ Frederick C. Peters |
||||
Secretary | Frederick C. Peters | |||||
President | ||||||
/s/ Diane Mc Donald |
/s/ Joseph G. Keefer |
|||||
Witness | Employee |
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Exhibit 10.(O)
THE BRYN MAWR TRUST COMPANY
EXECUTIVE CHANGE-OF-CONTROL
SEVERANCE AGREEMENT
Agreement made as of October 19, 1995 between The Bryn Mawr Trust Company, a Pennsylvania financial institution, subject to the provisions of the Pennsylvania Banking Code of 1965, as amended (the Company), and Robert J. Ricciardi, II (the Employee).
WHEREAS, the Employee is presently employed by the Company as its Executive Vice President;
WHEREAS, the Company considers it essential to foster the employment of well qualified key management personnel, and, in this regard, the board of directors of the Company recognizes that, as is the case with many financial institutions, the possibility of a change of control of the Companys publicly held parent company, Bryn Mawr Bank Corporation, (BMBC) may exist and that such possibility, and the uncertainty and questions which it may raise among the Companys management, may result in the departure or distraction of key management personnel to the detriment of the Company and ultimately to the detriment of BMBC and its shareholders;
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WHEREAS, the Boards of directors of the Company and BMBC have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of the Companys management to their assigned duties, without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the BMBC, although no such change is now contemplated; and
WHEREAS, in order to induce the Employee, a key member of the Companys management, to remain in the employ of the Company, the Company agrees that the Employee shall receive the compensation and benefits set forth in this Agreement in the event his/her employment with the Company is terminated subsequent to a Change of Control (as defined in Section 1 hereof) of BMBC, as a cushion against the financial and career impact on the Employee of any such Change of Control;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions . For all purposes of this Agreement, the following terms shall have the meanings specified in this Section, unless the context clearly otherwise requires:
2
(a) Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations issued under the Securities Exchange Act of 1934, as amended (the Exchange Act).
(b) AIP shall mean any Annual Incentive Plan of the Company, as in effect immediately prior to a change of Control, or predecessor or prior plan, including BMBCs Thrift and Savings Plan and the Companys annual bonus plan.
(c) Base Salary shall mean the total cash remuneration earned by the Employee on an annualized basis in all capacities with the Company and its Subsidiaries, including, without limitation, any amounts the payment of which has been deferred by the Employee, excluding only payments earned by or allocated to the Employee under the AIP.
(d) A Person shall be deemed the Beneficial Owner of any securities:
(i) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or
3
understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided , however , that a Person shall not be deemed the Beneficial Owner of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange;
(ii) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has beneficial ownership of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations issued under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided , however , that a Person shall not be deemed the Beneficial Owner of any security under this subsection (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a
4
public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations issued under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Persons Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subsection (ii) above) or disposing of any voting securities of BMBC; provided , however , that nothing in this Section 1(d) shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of any securities acquired through such Persons participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition.
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(e) Board shall mean the board of directors of the Company or BMBC as the context of this Agreement indicates.
(f) Change of Control shall be deemed to have taken place if (i) any Person (except BMBC, any Subsidiary of BMBC, any employee benefit plan of BMBC or the Company, any Person or entity organized, appointed or established by BMBC or any Subsidiary of BMBC for or pursuant to the terms of any such employee benefit plan) together with all Affiliates and Associates of such Person, shall become the Beneficial Owner in the aggregate of 25% or more of the common stock of BMBC then outstanding, or (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board of BMBC or the Company cease, for any reason, to constitute a majority thereof, unless the election, or the nomination for election by BMBCs or the Companys shareholders, as the case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors in office at the time of such election or nomination, who were directors at the beginning of such period.
(g) Common Stock shall mean the outstanding common stock of BMBC.
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(h) Pension Plan shall mean the BMBC non-contributory pension plan and the amended pension plan which covers eligible employees of the Company.
(i) Person shall mean any individual, firm, corporation, partnership or other entity.
(j) Stock Plan shall mean BMBCs Stock Option and Stock Appreciation Rights Plan, as in effect immediately prior to a Change of Control.
(k) Subsidiary shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations issued under the Exchange Act.
(l) Termination Date shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be.
(m) Termination of Employment shall mean the termination of the Employees actual employment relationship with the Company.
(n) Termination upon a Change of Control shall mean a Termination of Employment upon or within two (2) years after a Change of Control either:
7
(i) initiated by the Company for any reason other than (x) the Employees continuous illness, injury or incapacity for a period of six consecutive months or (y) for cause, which shall mean misappropriation of funds, habitual insobriety, substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the performance of his/her duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries or BMBC and its Subsidiaries taken as a whole; or
(ii) initiated by the Employee following one or more of the following occurrences:
(A) a significant reduction by the Company or BMBC (if the Employee is an officer of BMBC) of the authority, duties or responsibilities of the Employee immediately prior to the Change of Control;
(B) any removal of the Employee from his/her officer position with BMBC, the Company and
8
its Subsidiaries held by him/her immediately prior to the Change of Control, except in connection with promotions to higher office;
(C) a reduction by the Company in the Employees Base Salary as in effect immediately prior to the Change of Control;
(D) revocation or any modification of the AIP or Stock Plan, or any action taken pursuant to the terms of either plan, which materially (x) reduces the opportunity to receive compensation under any or both of such plans of equivalent amounts received by the Employee during the two (2) fiscal years immediately preceding the Change of Control, subject to the right of the Boards of Directors of BMBC or the Company, as appropriate, to establish in a manner consistent with past practice, prior to the Change of Control, reasonable goals under the AIP or Stock Plan, (y) reduces the compensation payable to the Employee under either or both of such plans but which does not effect comparable reductions in the compensation payable to the other
9
participants in such plans, or (z) increases the compensation payable to other participants in either or both of such plans but which does not effect corresponding increases in the amount of compensation payable to the Employee;
(E) termination or modification of BMBCs Pension Plan or Supplemental Employee Retirement Plan, in each case as such plans are in effect immediately prior to the Change of Control, which materially reduces (x) the retirement benefits provided by such plans, or (y) the funding thereof provided by the Pension Plan or by any trust established by BMBC to fund benefits provided by the Supplemental Employee Retirement Plan;
(F) a transfer of the Employee, without his/her express written consent, to a location which is outside the Greater Philadelphia area (or the general area in which his/her principal place of business immediately preceding the Change of Control may be located at such time, if other than Bryn Mawr, Pennsylvania), or which is
10
otherwise an unreasonable commuting distance from the Employees principal residence at the date of the Change of Control;
(G) the Employee being required to undertake business travel to an extent substantially greater than the Employees business travel obligations immediately prior to the Change of Control; or
(H) any failure of the Company to comply with and satisfy Section 13 of this Agreement.
2. Notice of Termination . Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a Notice of Termination means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employees employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice).
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3. Severance Compensation upon Termination . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall pay to the Employee, within fifteen (15) days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in paragraph (b) of Section 11 hereof cannot be completed within fifteen (15) days) an amount in cash equal to three (3) times the sum of the Employees Base Salary in effect either immediately prior to the Termination of Employment or immediately prior to the Change of Control, whichever is higher.
4. Other Payments . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall:
(a) pay to the Employee within fifteen (15) days after the Termination date:
(i) unless the Employee has exercised such options, an amount equal to the excess, if any, of the aggregate fair market value of the shares of BMBCs Common Stock subject to all stock options outstanding and unexercised as of the Termination Date, whether vested or unvested, granted to the Employee under the Stock Plan, over the aggregate
12
exercise price of all such stock options. For purposes of this paragraph, fair market value shall mean the highest of (x) the closing price of BMBCs Common Stock on the last business day the Common Stock was traded immediately preceding the Termination Date, if such Common Stock is publicly traded at such date, (y) if such Common Stock is not publicly traded at the Termination date, the value determined by an independent appraiser, such appraiser to be selected by the Employee and to be reasonably satisfactory to the Company (the fees and expenses of such appraiser to be borne by the Company), or (z) the highest per share price of BMBCs Common Stock paid (in connection with the Change of Control or at any time thereafter) by the Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control;
(ii) to the extent not theretofore paid, the Employees Base Salary through the Termination Date and a further amount equal to the Employees salary in lieu of his/her unused vacation pay, if any, both calculated at the salary rate in effect on the Termination Date, or, if higher, at the highest rate in effect at any time within the 90-day period preceding the Termination Date;
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(iii) to the extent not theretofore paid, an amount equal to all awards earned by the Employee under the AIP in respect of completed plan periods prior to the Termination Date (including all amounts the payment of which was previously deferred under such plans and interest thereon from the date of each such deferral to the date of payment at the maximum rate provided by such plans or any gain or increase in value obtained on investments in such plans), in each case without regard to any provisions set forth in such plans to the contrary. In the event that the Companys financial statements for any fiscal years, included in such plan periods, have not yet been completed at the Termination Date, the Companys shall pay to the Employee the amounts due hereunder as soon as possible thereafter;
(iv) payment in respect of the AIP for the uncompleted fiscal year during which Termination of Employment occurs determined by multiplying the amount determined in Section 3(a)(ii) by a fraction, the numerator of which shall be the number of days between the Termination Date and
14
the last day of the last full fiscal year prior to the Termination Date and the denominator of which shall be Three Hundred Sixty Five (365); and
(b) to the extent permitted by applicable law, continue or cause to be continued until thirty-six (36) whole months after the Termination Date, on the cost-sharing basis in effect immediately prior to the Change of Control, medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company to the Employee immediately prior to the Change of Control; provided , however , that the obligation of the Company to provide such benefits shall cease at such time as the Employee is employed on a full-time basis by a Person not owned or controlled by the Employee that provides the Employee, on substantially the same cost-sharing basis between the Company and the Employee in effect immediately prior to the Change of Control, with medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company and its Subsidiaries to the Employee immediately prior to the Change of Control;
(c) for both vesting and benefit calculation purposes, credit the Employee with three (3) additional year of credited service (as defined in BMBCs Pension Plan) under BMBCs Pension Plan and Supplemental Employee Retirement Plan in addition to the
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years of credited service that would have otherwise been calculated by reference solely to the Termination Date, it being understood that benefits in respect of the three (3) additional year of credited service shall be paid to the Employee under the Supplemental Employee Retirement Plan, and that BMBC shall, to the extent necessary to provide the Employee the additional benefits intended hereby, amend the Supplemental Employee Retirement Plan or create such supplemental retirement plans as may be necessary; and
(d) pay for reasonable career counseling services provided by Manchester Career Services or any such equivalent agency satisfactory to both the Company and the Employee.
5. Establishment of Trust . Immediately upon a Change of Control as herein defined, the Company shall establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Companys discretion, as to be set forth in the agreement pursuant to which the trust fund will be established.
6. Enforcement .
(a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3
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and 4 hereof within the respective time periods provided therein, the Company shall pay to the Employee, in addition to the payment of any other sums provided in this Agreement, interest, compounded daily, on any amount remaining unpaid from the date payment is required under Section 3, 4 or 5, as appropriate, until paid to the Employee, at the prime rate published daily in the Wall Street Journal, each change in such rate to take effect on the effective date of the change in such prime rate.
(b) It is the intent of the parties hereto that the Employee not be required to incur any expenses associated with the enforcement of his/her rights under this Agreement by arbitration, litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement.
7. No Mitigation . The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise.
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8. Nonexclusivity of Rights . Nothing in this Agreement shall prevent or limit the Employees continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by BMBC, the Company or any of its Subsidiaries or Affiliates and for which the Employee may qualify; provided , however , that if the Employee becomes entitled to and receives all of the payments provided for in this Agreement, the Employee agrees to waive his/her right to receive payments under any severance plan or program applicable to all employees of the Company.
9. No Set-Off . The Companys obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others and the Company hereby agrees not to exercise any such rights with respect to payment due the Employee pursuant to this Agreement.
10. Certain Reduction of Payments .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined as set forth herein that any payment or distribution by the Company to or for the benefit of the Employee, whether paid or payable or
18
distributed or distributable pursuant to the terms of this Agreement or otherwise (a Payment), would constitute an excess parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the Code), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as Agreement Payments) shall be reduced (but not below zero) to the Reduced Amount. The Reduced Amount shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 10, present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations to be made under this Section 10 shall be made, in writing, by Coopers & Lybrand, or the Companys independent certified public accountant immediately prior to the Change of Control, if other than Coopers & Lybrand, (the Accounting Firm), which firm shall provide its determinations and any supporting calculations in writing to both the Company and the Employee within ten (10) days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee
19
shall in his/her sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 10. Within five (5) days after the Employees determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made (Overpayment) or that additional Agreement Payments which have not been made by the Company could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. Within two (2) years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the Federal Rate); provided , however , that no amount shall be payable by the
20
Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest thereon at the Federal Rate.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in paragraphs (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses of any nature resulting from or relating to its determinations pursuant to paragraphs (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm.
11. Settlement of All Disputes .
(a) The Employee and the Company acknowledge that the Compensation Committee of the Companys Board intends to review and approve a schedule indicating a method of calculating certain payments to be made to the Employee hereunder in the event of a Termination upon a Change of Control. In the event that the compensation plans referred to herein change prior to a Change of
21
Control, the Compensation Committee of the Companys Board may, prior to such Change of Control, revise the schedule to reflect such changes. The method of calculation set forth on such schedule, as so revised prior to a Change of Control, shall be followed by the parties hereto unless manifestly unfair to the Employee.
(b) In the event of any dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control, the Company shall appoint as the sole and exclusive arbiter of such dispute, controversy or claim, a committee composed of two persons who were members of the Companys Board at any time within five (5) years prior to the Change of Control (which persons may, but need not be, directors of the Company at the time of such dispute, controversy or claim); provided , however , that no person shall be eligible to serve thereon who (i) is at the Termination Date, or shall have been at any time within one year prior thereto, an executive officer of the Company, or (ii) shall be or have been at any time related in any manner to or otherwise affiliated with, or was first nominated by, the corporation, Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control. The decision of such committee and the award of any monetary judgment or other relief by such committee shall be final and binding upon the Employee and the Company, and shall not be subject to appeal. Judgment may be
22
entered upon the decision and award of such committee by the Employee or the Company in any court of competent jurisdiction. The Company shall pay the persons selected pursuant to this subsection a reasonable fee for their services, and shall reimburse such persons for their expenses incurred in this capacity. In addition, the Company shall, to the maximum extent permitted by law, indemnify and hold harmless such persons of and from any and all claims, damages or expenses of any nature whatsoever relating to or arising from their activities in this capacity.
(c) In the event that the Company shall be unable to appoint the committee referred to in paragraph (b) above after good faith efforts to do so, or in the event that such committee cannot reach a unanimous agreement, any remaining dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control shall be settled by arbitration in the City of Philadelphia, in accordance with the commercial arbitration rules then in effect of the American Arbitration Association, before a panel of three (3) arbitrators, two (2) of whom shall be selected by the Company and the Employee, respectively, and the third of whom shall be selected by the other two arbitrators. Each arbitrator selected as provided herein is required to be or have been a director or an executive officer of a corporation whose shares of common stock were listed during at least one year of
23
such service on the New York Stock Exchange or the American Stock Exchange or quoted on the National Association of Securities Dealers Automated Quotations System. Any award entered by the arbitrators shall be entered thereon by any party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration shall be paid by the Company.
(d) The party or parties challenging the right of the Employee to the benefits of this Agreement shall in all circumstances have the burden of proof.
12. Term of Agreement . The term of this Agreement shall be for three (3) years from the date hereof and shall automatically be extended for additional one-year periods unless written notice of termination of this Agreement is provided to the Employee by the Company at least one year prior to the expiration of the initial three (3) year term or any one-year renewal period; provided , however , that (i) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect for a period of two (2) years and until all of the obligations of the parties hereunder are satisfied or have expired, and (ii) this Agreement shall terminate if, prior to the Change of Control, the employment of the Employee with the Company or any of its Subsidiaries shall terminate for any reason whatsoever.
24
13. Successor Company . The Company shall require any Person who acquires the majority of the Common Stock of the Company or BMBC or any successor or successors thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or BMBC, by agreement, in form and substance satisfactory to the Employee, to acknowledge expressly, in writing, that this Agreement is binding upon and enforceable against the Company or BMBC or any successor or successors thereto in accordance with the terms hereof and the instrument of transfer, and to become jointly and severally obligated with the Company to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform this Agreement if no such acquisition purchaser, merger consolidation, succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally.
14. Notice . All notices and other communications required or permitted hereunder or necessary or convenient in connection
25
herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
Corporate Secretary
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, PA 19010
If to the Employee, to:
Mr. Robert J. Ricciardi
32 Craig Lane
Malvern, PA 19355
or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service.
15. Governing Law . This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.
26
16. Contents of Agreement, Amendment and Assignment .
(a) This Agreement supersedes all prior agreements and sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Companys behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans (including without limitation the AIP and Stock Plan) under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Boards of BMBC or the Company.
(b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company.
(c) The Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or oral
27
statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of the Company (whether written or oral, and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement.
(d) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company.
17. Severability . If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver . No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other
28
right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including without limitation any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination upon a Change of Control pursuant to Section 1(n)(ii) of this Agreement.
19. Miscellaneous . All section headings in this Agreement are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written.
Attest: | THE BRYN MAWR TRUST COMPANY | |||||
[Seal] | ||||||
/s/ Samuel C. Wasson, Jr. |
By |
/s/ Robert L.Stevens |
||||
Secretary | Robert L. Stevens | |||||
Chairman | ||||||
/s/ Nancy L. Gross |
/s/ Robert J. Ricciardi |
|||||
Witness | Robert J. Ricciardi |
29
Exhibit 10(P)
THE BRYN MAWR TRUST COMPANY
EXECUTIVE CHANGE-OF-CONTROL
SEVERANCE AGREEMENT
This Agreement made as of February 5, 2007 between The Bryn Mawr Trust Company, a Pennsylvania financial institution, subject to the provisions of the Pennsylvania Banking Code of 1965, as amended (the Company), and Matthew G. Waschull (the Employee).
WHEREAS, the Employee is presently employed by the Company as its Executive Vice President;
WHEREAS, the Company considers it essential to foster the employment of well qualified key management personnel, and, in this regard, the board of directors of the Company recognizes that, as is the case with many financial institutions, the possibility of a change of control of the Companys publicly held parent company, Bryn Mawr Bank Corporation, (BMBC) may exist and that such possibility, and the uncertainty and questions which it may raise among the Companys management, may result in the departure or distraction of key management personnel to the detriment of the Company and ultimately to the detriment of BMBC and its shareholders;
1
WHEREAS, the Boards of directors of the Company and BMBC have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of the Companys management to their assigned duties, without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the BMBC, although no such change is now contemplated; and
WHEREAS, in order to induce the Employee, a key member of the Companys management, to remain in the employ of the Company, the Company agrees that the Employee shall receive the compensation and benefits set forth in this Agreement in the event his/her employment with the Company is terminated subsequent to a Change of Control (as defined in Section 1 hereof) of BMBC, as a cushion against the financial and career impact on the Employee of any such Change of Control;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions . For all purposes of this Agreement, the following terms shall have the meanings specified in this Section, unless the context clearly otherwise requires:
(a) Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations issued under the Securities Exchange Act of 1934, as amended (the Exchange Act).
2
(b) AIP shall mean any Annual Incentive Plan of the Company, as in effect immediately prior to a change of Control, or predecessor or prior plan, including BMBCs Thrift and Savings Plan and the Companys annual bonus plan.
(c) Base Salary shall mean the total cash remuneration earned by the Employee on an annualized basis in all capacities with the Company and its Subsidiaries, including, without limitation, any amounts the payment of which has been deferred by the Employee, excluding only payments earned by or allocated to the Employee under the AIP.
(d) A Person shall be deemed the Beneficial Owner of any securities:
(i) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange
3
rights, rights, warrants or options, or otherwise; provided , however , that a Person shall not be deemed the Beneficial Owner of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange;
(ii) that such Person or any of such Persons Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has beneficial ownership of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations issued under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided , however , that a Person shall not be deemed the Beneficial Owner of any security under this subsection (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable
4
provisions of the General Rules and Regulations issued under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Persons Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subsection (ii) above) or disposing of any voting securities of BMBC; provided , however , that nothing in this Section 1(d) shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of any securities acquired through such Persons participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition.
(e) Board shall mean the board of directors of the Company or BMBC as the context of this Agreement indicates.
5
(f) Change of Control shall be deemed to have taken place if (i) any Person (except BMBC, any Subsidiary of BMBC, any employee benefit plan of BMBC or the Company, any Person or entity organized, appointed or established by BMBC or any Subsidiary of BMBC for or pursuant to the terms of any such employee benefit plan) together with all Affiliates and Associates of such Person, shall become the Beneficial Owner in the aggregate of 25% or more of the common stock of BMBC then outstanding, or (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board of BMBC or the Company cease, for any reason, to constitute a majority thereof, unless the election, or the nomination for election by BMBCs or the Companys shareholders, as the case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors in office at the time of such election or nomination, who were directors at the beginning of such period.
(g) Common Stock shall mean the outstanding common stock of BMBC.
(h) Pension Plan shall mean the BMBC non-contributory pension plan and the amended pension plan which covers eligible employees of the Company.
(i) Person shall mean any individual, firm, corporation, partnership or other entity.
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(j) Stock Plan shall mean (i) BMBCs 2004 Stock Option and Stock Appreciation Rights Plan, as amended and restated; and (ii) any other stock option plan, stock option and stock appreciation rights plan, stock bonus plan, stock grant plan, or similar benefit plan established by BMBC and which exists for the benefit of the Employee at the time of a Change in Control.
(k) Subsidiary shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations issued under the Exchange Act.
(l) Termination Date shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be.
(m) Termination of Employment shall mean the termination of the Employees actual employment relationship with the Company.
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(n) Termination upon a Change of Control shall mean a Termination of Employment upon or within two (2) years after a Change of Control either:
(i) initiated by the Company for any reason other than (x) the Employees continuous illness, injury or incapacity for a period of six consecutive months or (y) for cause, which shall mean misappropriation of funds, habitual insobriety, substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the performance of his/her duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries or BMBC and its Subsidiaries taken as a whole; or
(ii) initiated by the Employee following one or more of the following occurrences:
(A) a significant reduction by the Company or BMBC (if the Employee is an officer of BMBC) of the authority, duties or responsibilities of the Employee immediately prior to the Change of Control;
(B) any removal of the Employee from his/her officer position with BMBC, the Company and its Subsidiaries held by him/her immediately prior to the Change of Control, except in connection with promotions to higher office;
8
(C) a reduction by the Company in the Employees Base Salary as in effect immediately prior to the Change of Control;
(D) revocation or any modification of the AIP or Stock Plan, or any action taken pursuant to the terms of either plan, which materially (x) reduces the opportunity to receive compensation under any or both of such plans of equivalent amounts received by the Employee during the three (3) fiscal years immediately preceding the Change of Control, subject to the right of the Boards of Directors of BMBC or the Company, as appropriate, to establish in a manner consistent with past practice, prior to the Change of Control, reasonable goals under the AIP or Stock Plan, (y) reduces the compensation payable to the Employee under either or both of such plans but which does not effect comparable reductions in the compensation payable to the other participants in such plans, or (z) increases the compensation payable to other participants in either or both of such plans but which does not effect corresponding increases in the amount of compensation payable to the Employee;
9
(E) termination or modification of BMBCs Pension Plan or Supplemental Employee Retirement Plan, in each case as such plans are in effect immediately prior to the Change of Control, which materially reduces (x) the retirement benefits provided by such plans, or (y) the funding thereof provided by the Pension Plan or by any trust established by BMBC to fund benefits provided by the Supplemental Employee Retirement Plan;
(F) a transfer of the Employee, without his/her express written consent, to a location which is outside the Greater Philadelphia area (or the general area in which his/her principal place of business immediately preceding the Change of Control may be located at such time, if other than Bryn Mawr, Pennsylvania), or which is otherwise an unreasonable commuting distance from the Employees principal residence at the date of the Change of Control;
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(G) the Employee being required to undertake business travel to an extent substantially greater than the Employees business travel obligations immediately prior to the Change of Control; or
(H) any failure of the Company to comply with and satisfy Section 13 of this Agreement.
2. Notice of Termination . Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a Notice of Termination means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employees employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice).
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3. Severance Compensation upon Termination . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall pay to the Employee, within fifteen (15) days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in paragraph (b) of Section 11 hereof cannot be completed within fifteen (15) days) an amount in cash equal to three (3) times the sum of the Employees Base Salary in effect either immediately prior to the Termination of Employment or immediately prior to the Change of Control, whichever is higher.
4. Other Payments . Subject to the provisions of Section 10 hereof, in the event of the Employees Termination upon a Change of Control, the Company shall:
(a) pay to the Employee within fifteen (15) days after the Termination date:
(i) unless the Employee has exercised such options, an amount equal to the excess, if any, of the aggregate fair market value of the shares of BMBCs Common Stock subject to all stock options outstanding and unexercised as of the Termination Date, whether vested or unvested, granted to the Employee under the Stock Plan, over the aggregate exercise price of all such stock options. For
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purposes of this paragraph, fair market value shall mean the highest of (x) the closing price of BMBCs Common Stock on the last business day the Common Stock was traded immediately preceding the Termination Date, if such Common Stock is publicly traded at such date, (y) if such Common Stock is not publicly traded at the Termination date, the value determined by an independent appraiser, such appraiser to be selected by the Employee and to be reasonably satisfactory to the Company (the fees and expenses of such appraiser to be borne by the Company), or (z) the highest per share price of BMBCs Common Stock paid (in connection with the Change of Control or at any time thereafter) by the Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control;
(ii) to the extent not theretofore paid, the Employees Base Salary through the Termination Date and a further amount equal to the Employees salary in lieu of his/her unused vacation pay, if any, both calculated at the salary rate in effect on the Termination Date, or, if higher, at the highest rate in effect at any time within the 90-day period preceding the Termination Date;
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(iii) to the extent not theretofore paid, an amount equal to all awards earned by the Employee under the AIP in respect of completed plan periods prior to the Termination Date (including all amounts the payment of which was previously deferred under such plans and interest thereon from the date of each such deferral to the date of payment at the maximum rate provided by such plans or any gain or increase in value obtained on investments in such plans), in each case without regard to any provisions set forth in such plans to the contrary. In the event that the Companys financial statements for any fiscal years, included in such plan periods, have not yet been completed at the Termination Date, the Company shall pay to the Employee the amounts due hereunder as soon as possible thereafter;
(iv) payment in respect of the AIP for the uncompleted fiscal year during which Termination of Employment occurs determined by multiplying the amount determined in Section 3(a)(ii) by a fraction, the numerator of which shall be the number of days between the Termination Date and the last day of the last full fiscal year prior to the Termination Date and the denominator of which shall be Three Hundred Sixty Five (365); and
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(b) to the extent permitted by applicable law, continue or cause to be continued until thirty-six (36) whole months after the Termination Date, on the cost-sharing basis in effect immediately prior to the Change of Control, medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company to the Employee immediately prior to the Change of Control; provided , however , that the obligation of the Company to provide such benefits shall cease at such time as the Employee is employed on a full-time basis by a Person not owned or controlled by the Employee that provides the Employee, on substantially the same cost-sharing basis between the Company and the Employee in effect immediately prior to the Change of Control, with medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those furnished by the Company and its Subsidiaries to the Employee immediately prior to the Change of Control;
(c) for both vesting and benefit calculation purposes, credit the Employee with three (3) additional year of credited service (as defined in BMBCs Pension Plan) under BMBCs Pension Plan and Supplemental Employee Retirement Plan in addition to the years of credited service that would have otherwise been calculated by reference solely to the Termination Date, it being understood that benefits in respect of the three (3) additional
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year of credited service shall be paid to the Employee under the Supplemental Employee Retirement Plan, and that BMBC shall, to the extent necessary to provide the Employee the additional benefits intended hereby, amend the Supplemental Employee Retirement Plan or create such supplemental retirement plans as may be necessary; and
(d) pay for reasonable career counseling services provided by Right Management, Inc. or any such equivalent agency satisfactory to both the Company and the Employee.
5. Establishment of Trust . Immediately upon a Change of Control as herein defined, the Company shall establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Companys discretion, as to be set forth in the agreement pursuant to which the trust fund will be established.
6. Enforcement .
(a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3 and 4 hereof within the respective time periods provided therein,
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the Company shall pay to the Employee, in addition to the payment of any other sums provided in this Agreement, interest, compounded daily, on any amount remaining unpaid from the date payment is required under Section 3, 4 or 5, as appropriate, until paid to the Employee, at the prime rate published daily in the Wall Street Journal, each change in such rate to take effect on the effective date of the change in such prime rate.
(b) It is the intent of the parties hereto that the Employee not be required to incur any expenses associated with the enforcement of his/her rights under this Agreement by arbitration, litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement.
7. No Mitigation . The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise.
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8. Nonexclusivity of Rights . Nothing in this Agreement shall prevent or limit the Employees continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by BMBC, the Company or any of its Subsidiaries or Affiliates and for which the Employee may qualify; provided , however , that if the Employee becomes entitled to and receives all of the payments provided for in this Agreement, the Employee agrees to waive his/her right to receive payments under any severance plan or program applicable to all employees of the Company.
9. No Set-Off . The Companys obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others and the Company hereby agrees not to exercise any such rights with respect to payment due the Employee pursuant to this Agreement.
10. Certain Reduction of Payments .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined as set forth herein that any payment or distribution by the Company to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a Payment), would constitute an excess
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parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the Code), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as Agreement Payments) shall be reduced (but not below zero) to the Reduced Amount. The Reduced Amount shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 10, present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations to be made under this Section 10 shall be made, in writing, to KPMG LLP, or the Companys independent certified public accountant immediately prior to the Change of Control, if other than KPMG LLP, (the Accounting Firm), which firm shall provide its determinations and any supporting calculations in writing to both the Company and the Employee within ten (10) days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee shall in his/her sole discretion determine which and how much of the Agreement
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Payments shall be eliminated or reduced consistent with the requirements of this Section 10. Within five (5) days after the Employees determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made (Overpayment) or that additional Agreement Payments which have not been made by the Company could have been made (Underpayment), in each case, consistent with the calculations required to be made hereunder. Within two (2) years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the Federal Rate); provided , however , that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section
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4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest thereon at the Federal Rate.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in paragraphs (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses of any nature resulting from or relating to its determinations pursuant to paragraphs (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm.
11. Settlement of All Disputes .
(a) The Employee and the Company acknowledge that the Compensation Committee of the Companys Board intends to review and approve a schedule indicating a method of calculating certain payments to be made to the Employee hereunder in the event of a Termination upon a Change of Control. In the event that the compensation plans referred to herein change prior to a Change of Control, the Compensation Committee of the Companys Board may, prior to such Change of Control, revise the schedule to reflect
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such changes. The method of calculation set forth on such schedule, as so revised prior to a Change of Control, shall be followed by the parties hereto unless manifestly unfair to the Employee.
(b) In the event of any dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control, the Company shall appoint as the sole and exclusive arbiter of such dispute, controversy or claim, a committee composed of two persons who were members of the Companys Board at any time within five (5) years prior to the Change of Control (which persons may, but need not be, directors of the Company at the time of such dispute, controversy or claim); provided , however , that no person shall be eligible to serve thereon who (i) is at the Termination Date, or shall have been at any time within one year prior thereto, an executive officer of the Company, or (ii) shall be or have been at any time related in any manner to or otherwise affiliated with, or was first nominated by, the corporation, Person or group whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control. The decision of such committee and the award of any monetary judgment or other relief by such committee shall be final and binding upon the Employee and the Company, and shall not be subject to appeal. Judgment may be entered upon the decision and award of such committee by the Employee or the Company in any court of competent jurisdiction.
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The Company shall pay the persons selected pursuant to this subsection a reasonable fee for their services, and shall reimburse such persons for their expenses incurred in this capacity. In addition, the Company shall, to the maximum extent permitted by law, indemnify and hold harmless such persons of and from any and all claims, damages or expenses of any nature whatsoever relating to or arising from their activities in this capacity.
(c) In the event that the Company shall be unable to appoint the committee referred to in paragraph (b) above after good faith efforts to do so, or in the event that such committee cannot reach a unanimous agreement, any remaining dispute, controversy or claim arising out of or relating to any provision of this Agreement or the Employees Termination upon a Change of Control shall be settled by arbitration in the City of Philadelphia, in accordance with the commercial arbitration rules then in effect of the American Arbitration Association, before a panel of three (3) arbitrators, two (2) of whom shall be selected by the Company and the Employee, respectively, and the third of whom shall be selected by the other two arbitrators. Each arbitrator selected as provided herein is required to be or have been a director or an executive officer of a corporation whose shares of common stock were listed during at least one year of such service on the New York Stock Exchange or the American Stock Exchange or quoted on the National Association of Securities
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Dealers Automated Quotations System. Any award entered by the arbitrators shall be entered thereon by any party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration shall be paid by the Company.
(d) The party or parties challenging the right of the Employee to the benefits of this Agreement shall in all circumstances have the burden of proof.
12. Term of Agreement . The term of this Agreement shall be for three (3) years from the date hereof and shall automatically be extended for additional one-year periods unless written notice of termination of this Agreement is provided to the Employee by the Company at least one year prior to the expiration of the initial three (3) year term or any one-year renewal period; provided , however , that (i) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect for a period of two (2) years and until all of the obligations of the parties hereunder are satisfied or have expired, and (ii) this Agreement shall terminate if, prior to the Change of Control, the employment of the Employee with the Company or any of its Subsidiaries shall terminate for any reason whatsoever.
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13. Successor Company . The Company shall require any Person who acquires the majority of the Common Stock of the Company or BMBC or any successor or successors thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or BMBC, by agreement, in form and substance satisfactory to the Employee, to acknowledge expressly, in writing, that this Agreement is binding upon and enforceable against the Company or BMBC or any successor or successors thereto in accordance with the terms hereof and the instrument of transfer, and to become jointly and severally obligated with the Company to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform this Agreement if no such acquisition purchaser, merger consolidation, succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally.
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14. Notice . All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
Corporate Secretary
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, PA 19010
If to the Employee, to:
P.O. Box 123
Bryn Mawr, PA 19010
or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service.
15. Governing Law . This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.
16. Contents of Agreement, Amendment and Assignment .
(a) This Agreement supersedes all prior agreements and sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment
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executed by the Employee and approved by the Board and executed on the Companys behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans (including without limitation the AIP and Stock Plan) under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Boards of BMBC or the Company.
(b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company.
(c) The Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of the Company (whether written or oral, and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement.
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(d) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company.
17. Severability . If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver . No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including without limitation any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof
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after an event has occurred which would, if the Employee had resigned, have constituted a Termination upon a Change of Control pursuant to Section 1(n)(ii) of this Agreement.
19. Miscellaneous . All section headings in this Agreement are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written.
Attest: | THE BRYN MAWR TRUST COMPANY | |||||||
[Seal] | ||||||||
/s/ Robert J. Ricciardi | By | /s/ Frederick C. Peters | ||||||
Secretary | Fredrick C. Peters II | |||||||
President | ||||||||
/s/ Paul M. Kistler | /s/ Matthew G. Waschall | |||||||
Witness | Employee |
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Exhibit 10(S)
DEFERRED PAYMENT PLAN
FOR DIRECTORS OF
BRYN MAWR BANK CORPORATION
(As Amended and Restated Effective January 1, 2000)
1. | Purpose . |
The purpose of this Plan is to provide each Eligible Director with the opportunity to select the timing of receipt of his or her Compensation.
2. | Eligibility . |
Each Eligible Director shall be eligible to participate in this Plan.
3. | Definitions . |
The following words and phrases shall have the meanings indicated, unless the context requires a different meaning:
(a) Beneficiary shall mean the person(s) designated to receive the balance of an Eligible Directors Deferred Account upon the death of the Eligible Director.
(b) Board shall mean the Board of Directors of the Company.
(c) Code shall mean the Internal Revenue Code of 1986, as amended.
(d) Company shall mean Bryn Mawr Bank Corporation.
(e) Compensation shall mean the cash compensation payable by the Company to an Eligible Director for his or her services as a member of the Board and committees thereof.
(f) Deferred Account shall mean a bookkeeping reserve account established in the books of the Company and maintained in accordance with Section 5, below, to record Compensation which an Eligible Director has elected to defer, plus earnings and minus losses thereon.
(g) Effective Date shall mean January 1, 2000, the effective date of the Plan as hereby amended and restated.
(h) Election shall mean the written election by an Eligible Director, pursuant to Section 4, below, to defer the receipt of all or a portion of his Compensation pursuant to this Plan.
(i) Eligible Director shall mean any member of the Board who is entitled to Compensation for his services as a member of the Board.
(j) Plan shall mean the Deferred Payment Plan for Directors of Bryn Mawr Bank Corporation, as set forth herein and as may be amended from time to time.
(k) Valuation Date shall mean the last day of each calendar quarter, or such other more frequent dates as the Company shall establish for purposes of valuing Accounts.
4. | Election . |
(a) Prior to the commencement of a calendar quarter, an Eligible Director may make an Election, pursuant to which payment of a specified percentage or flat dollar amount of his Compensation earned during such calendar quarter and thereafter shall be deferred until a future date established pursuant to Section 6(b), below. The amount of Compensation specified in the Election shall be allocated to the Eligible Directors Deferred Account as of the last date of each calendar quarter next following or coinciding with the date such Compensation would have been payable to the Eligible Director in the absence of the Election, or as soon as practicable thereafter. An Eligible Directors Election must be in writing, and in such form as the Company shall prescribe.
(b) An Eligible Director may modify or revoke his or her Election effective as of the commencement of any calendar quarter, provided such modification or revocation is in writing in such form as the Company shall prescribe, and is delivered to the Company in advance of such calendar quarter.
(c) An Eligible Directors Election, or subsequent modification or revocation thereof, shall remain in effect during all calendar quarters and calendar years after its effective date, unless and until modified or revoked, or a new Election is made, in accordance with the foregoing provisions of this Section 4.
5. | Administration of the Deferred Account . |
(a) As of each Valuation Date the Company shall credit each Eligible Directors Deferred Account with earnings (or losses) on the balance of the Deferred Account as of the immediately preceding Valuation Date in accordance with the investment options selected by the Eligible Director from the list of investment options made available by the Company for this purpose from time to time. The rate of return, positive or negative, shall be based on the actual performance of the mutual fund(s) or other investment vehicle(s) designated by the Company as investment options and selected by the Eligible Director, as if the balance of the Account were actually invested in such fund(s) or other investment vehicle(s), net of asset based charges, including, without limitation, money management fees and fund administrative expenses.
An Eligible Directors selection of investment options may be modified effective as of any Valuation Date, provided such modification is made and delivered to the Company sufficiently in advance of such date to permit the Company to effect such modification as of such date. An Eligible Directors selection of investment options, or modification thereof, shall be in writing, and in such form as the Company shall prescribe. The Company shall provide notice to the Eligible Directors of any change to such investment options sufficiently in advance of the change to permit the Eligible Directors to act in response thereto.
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(b) Each Eligible Directors Deferred Account shall be reduced by the portion of any reasonable Plan administration or maintenance expenses allocated thereto by the Company. The amount of such Plan expenses allocated to each Deferred Account shall be determined by multiplying the total of such expenses by a fraction, the numerator of which is the balance of such Deferred Account as of the Valuation Date immediately preceding or coinciding with such allocation, and the denominator of which is the aggregate balance of all Deferred Accounts as of such Valuation Date.
(c) The Company may, in its discretion, establish a trust for the purpose of accumulating assets to satisfy its obligations hereunder, or its obligations under this Plan and similar plans which it may establish for the benefit of members of the Board, or both members of the Board and employees of the Company. Such trust shall include such terms, restrictions and limitations as necessary to ensure that it will be treated as a grantor trust within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, with respect to the Company.
6. | Distributions from Deferred Account . |
(a) All distributions from an Eligible Directors Deferred Account shall be in cash.
(b) Each Eligible Director shall make an election, in writing and in such form as the Company shall prescribe, with respect to the date as of which distribution of his or her Deferred Account shall commence. The Eligible Directors choice of such distribution dates shall be limited to the following:
(i) the date as of which he or she ceases to serve as a member of the Board;
(ii) the Eligible Directors 65 th birthday; or
(iii) that number of whole years (not greater than three (3)) after the date as of which the Eligible Director ceases to serve as a member of the Board.
In the absence of an election pursuant to this Section 6(b), the Eligible Director shall be deemed to have elected a distribution date of the February 1 of the calendar year following the calendar year in which he or she ceases to serve as a member of the Board.
An election pursuant to this Section 6(b), including a deemed election pursuant to the immediately preceding paragraph, may be modified, in writing and in such form as may be prescribed by the Company; provided, however, that no such modification shall be effective unless it is made prior to the calendar year in which such distribution date would occur in the absence of such modification; provided further, however, that the Board may, in its sole discretion and without any obligation to do so, and in accordance with the majority vote of all members of the Board excluding the affected Eligible Director, approve such attempted modification as if it had been effective.
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(c) As soon as practicable following the distribution date established pursuant to Section 6(b), above, the balance of his or her Deferred Account shall be distributed to the Eligible Director in one of the following optional forms of distribution, as he or she may elect in writing in the form prescribed by the Company:
(i) annual installments payable for a number of whole years specified by the Eligible Director, which number shall not exceed ten (10); or
(ii) a single lump sum distribution.
Such election must be made prior to the calendar year in which such distribution date occurs in order to be effective, and any modification of such election shall be effective only if made prior to such calendar year. If an election under this Section 6(c) is not timely made, the Eligible Director shall be deemed to have elected to receive distributions in the form of option (ii). If a modification of such election is not timely made, the Eligible Directors Deferred Account shall be distributed in accordance with the next most recent timely election or modification thereof; provided, however, that the Board may, in its sole discretion and without any obligation to do so, and in accordance with the majority vote of all members of the Board excluding the affected Eligible Director, approve such attempted modification as if it had been effective.
If distributions are to be made in installments, the amount of each installment shall be equal to the balance of the Deferred Account as of the Valuation Date preceding the date of distribution of the installment, divided by the number of installment payments remaining (including that installment). If the Eligible Director dies prior to the receipt of all installment distributions, the balance of the Deferred Account shall be distributed to his or her Beneficiary in a single lump sum. For this purpose, the balance of the Deferred Account shall be determined as of the Valuation Date immediately preceding the date of payment.
(d) In the event of an Eligible Directors death prior to the distribution date established pursuant to Section 6(b), above, his or her Beneficiary shall receive the balance of the Eligible Directors Deferred Account in a single lump sum as soon as practicable following the Eligible Directors death. For purposes of this Section 6(d), the balance of the Deferred Account shall be the balance as of the Valuation Date preceding payment.
(e) Any amount distributed to an Eligible Director or Beneficiary under this Plan shall be subject to all applicable tax withholdings and other deductions mandated by law.
7. | Designation of Beneficiary . |
(a) Each Eligible Director shall file with the Company a written designation, in the form prescribed by the Company, of one or more persons as Beneficiary to receive the balance of the Eligible Directors Deferred Account upon his or her death. For this purpose, the balance of the Deferred Account shall be the balance as of the Valuation Date preceding payment. The Eligible Director may, from time to time, revoke or change his or her Beneficiary designation by filing a new designation with the Company. The last such designation received by the Company shall be controlling; provided, however, that no designation, change or revocation thereof, shall be effective unless received by the Company prior to the Eligible Directors death.
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(b) If no such Beneficiary designation is in effect at the time of the Eligible Directors death, or if no designated Beneficiary survives the Eligible Director, the payment of the amount, if any, payable under the Plan upon his or her death shall be made to the Eligible Directors estate.
8. | Amendment or Termination . |
(a) The Board reserves the right at any time to amend or terminate the Plan in whole or in part, retroactively or prospectively, for any reason and without the consent of any Eligible Director or Beneficiary, provided that no such amendment may adversely affect the rights of an Eligible Director or a Beneficiary with respect to amounts credited to the Eligible Directors Deferred Account prior to such amendment.
(b) Upon termination of the Plan, the balance of each Eligible Directors Deferred Account shall be distributed to the Eligible Director in a single lump sum, based on the value thereof as of the Valuation Date immediately preceding the distribution.
9. | Miscellaneous . |
(a) Nothing contained in the Plan shall give the Eligible Director the right to be retained in the service of the Company.
(b) If the Company shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, the Company may direct that any amount to which such person is entitled be paid to his or her spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Company to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Plan and the Company therefor.
(c) Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, encumbrance or garnishment by creditors of the Eligible Director or his or her Beneficiary, nor be subject in any manner to the debts or liabilities of any person, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void.
(d) It is the intention of the Company that the Plan shall be unfunded for Federal income tax purposes. Accordingly, this Plan constitutes a mere promise by the Company to make payments hereunder in the future, and each Eligible Director or, if applicable, his or her Beneficiary, shall have the status of a general unsecured creditor of the Company with respect to the Plan. Except as provided by the terms of any trust established pursuant to Section 5(c), above, neither an Eligible Director nor his or her Beneficiary shall have any right, title, or interest in or to any assets which the Company may hold to aid it in meeting its obligations hereunder. Such assets, whether held in trust or otherwise, shall be unrestricted corporate assets.
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(e) All rights under this Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.
Exhibit 10(T)
DEFERRED PAYMENT PLAN
FOR DIRECTORS OF
BRYN MAWR TRUST COMPANY
(As Amended and Restated Effective January 1, 2000)
1. | Purpose . |
The purpose of this Plan is to provide each Eligible Director with the opportunity to select the timing of receipt of his or her Compensation.
2. | Eligibility . |
Each Eligible Director shall be eligible to participate in this Plan.
3. | Definitions . |
The following words and phrases shall have the meanings indicated, unless the context requires a different meaning:
(a) Beneficiary shall mean the person(s) designated to receive the balance of an Eligible Directors Deferred Account upon the death of the Eligible Director.
(b) Board shall mean the Board of Directors of the Company.
(c) Code shall mean the Internal Revenue Code of 1986, as amended.
(d) Company shall mean Bryn Mawr Trust Company.
(e) Compensation shall mean the cash compensation payable by the Company to an Eligible Director for his or her services as a member of the Board and committees thereof.
(f) Deferred Account shall mean a bookkeeping reserve account established in the books of the Company and maintained in accordance with Section 5, below, to record Compensation which an Eligible Director has elected to defer, plus earnings and minus losses thereon.
(g) Effective Date shall mean January 1, 2000, the effective date of the Plan as hereby amended and restated.
(h) Election shall mean the written election by an Eligible Director, pursuant to Section 4, below, to defer the receipt of all or a portion of his Compensation pursuant to this Plan.
(i) Eligible Director shall mean any member of the Board who is entitled to Compensation for his services as a member of the Board.
(j) Plan shall mean the Deferred Payment Plan for Directors of Bryn Mawr Trust Company, as set forth herein and as may be amended from time to time.
(k) Valuation Date shall mean the last day of each calendar quarter, or such other more frequent dates as the Company shall establish for purposes of valuing Accounts.
4. | Election . |
(a) Prior to the commencement of a calendar quarter, an Eligible Director may make an Election, pursuant to which payment of a specified percentage or flat dollar amount of his Compensation earned during such calendar quarter and thereafter shall be deferred until a future date established pursuant to Section 6(b), below. The amount of Compensation specified in the Election shall be allocated to the Eligible Directors Deferred Account as of the last date of each calendar quarter next following or coinciding with the date such Compensation would have been payable to the Eligible Director in the absence of the Election, or as soon as practicable thereafter. An Eligible Directors Election must be in writing, and in such form as the Company shall prescribe.
(b) An Eligible Director may modify or revoke his or her Election effective as of the commencement of any calendar quarter, provided such modification or revocation is in writing in such form as the Company shall prescribe, and is delivered to the Company in advance of such calendar quarter.
(c) An Eligible Directors Election, or subsequent modification or revocation thereof, shall remain in effect during all calendar quarters and calendar years after its effective date, unless and until modified or revoked, or a new Election is made, in accordance with the foregoing provisions of this Section 4.
5. | Administration of the Deferred Account . |
(a) As of each Valuation Date the Company shall credit each Eligible Directors Deferred Account with earnings (or losses) on the balance of the Deferred Account as of the immediately preceding Valuation Date in accordance with the investment options selected by the Eligible Director from the list of investment options made available by the Company for this purpose from time to time. The rate of return, positive or negative, shall be based on the actual performance of the mutual fund(s) or other investment vehicle(s) designated by the Company as investment options and selected by the Eligible Director, as if the balance of the Account were actually invested in such fund(s) or other investment vehicle(s), net of asset based charges, including, without limitation, money management fees and fund administrative expenses.
An Eligible Directors selection of investment options may be modified effective as of any Valuation Date, provided such modification is made and delivered to the Company sufficiently in advance of such date to permit the Company to effect such modification as of such date. An Eligible Directors selection of investment options, or modification thereof, shall be in writing, and in such form as the Company shall prescribe. The Company shall provide notice to the Eligible Directors of any change to such investment options sufficiently in advance of the change to permit the Eligible Directors to act in response thereto.
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(b) Each Eligible Directors Deferred Account shall be reduced by the portion of any reasonable Plan administration or maintenance expenses allocated thereto by the Company. The amount of such Plan expenses allocated to each Deferred Account shall be determined by multiplying the total of such expenses by a fraction, the numerator of which is the balance of such Deferred Account as of the Valuation Date immediately preceding or coinciding with such allocation, and the denominator of which is the aggregate balance of all Deferred Accounts as of such Valuation Date.
(c) The Company may, in its discretion, establish a trust for the purpose of accumulating assets to satisfy its obligations hereunder, or its obligations under this Plan and similar plans which it may establish for the benefit of members of the Board, or both members of the Board and employees of the Company. Such trust shall include such terms, restrictions and limitations as necessary to ensure that it will be treated as a grantor trust within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, with respect to the Company.
6. | Distributions from Deferred Account . |
(a) All distributions from an Eligible Directors Deferred Account shall be in cash.
(b) Each Eligible Director shall make an election, in writing and in such form as the Company shall prescribe, with respect to the date as of which distribution of his or her Deferred Account shall commence. The Eligible Directors choice of such distribution dates shall be limited to the following:
(i) the date as of which he or she ceases to serve as a member of the Board;
(ii) the Eligible Directors 65 th birthday; or
(iii) that number of whole years (not greater than three (3)) after the date as of which the Eligible Director ceases to serve as a member of the Board.
In the absence of an election pursuant to this Section 6(b), the Eligible Director shall be deemed to have elected a distribution date of the February 1 of the calendar year following the calendar year in which he or she ceases to serve as a member of the Board.
An election pursuant to this Section 6(b), including a deemed election pursuant to the immediately preceding paragraph, may be modified, in writing and in such form as may be prescribed by the Company; provided, however, that no such modification shall be effective unless it is made prior to the calendar year in which such distribution date would occur in the absence of such modification; provided further, however, that the Board may, in its sole discretion and without any obligation to do so, and in accordance with the majority vote of all members of the Board excluding the affected Eligible Director, approve such attempted modification as if it had been effective.
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(c) As soon as practicable following the distribution date established pursuant to Section 6(b), above, the balance of his or her Deferred Account shall be distributed to the Eligible Director in one of the following optional forms of distribution, as he or she may elect in writing in the form prescribed by the Company:
(i) annual installments payable for a number of whole years specified by the Eligible Director, which number shall not exceed ten (10); or
(ii) a single lump sum distribution.
Such election must be made prior to the calendar year in which such distribution date occurs in order to be effective, and any modification of such election shall be effective only if made prior to such calendar year. If an election under this Section 6(c) is not timely made, the Eligible Director shall be deemed to have elected to receive distributions in the form of option (ii). If a modification of such election is not timely made, the Eligible Directors Deferred Account shall be distributed in accordance with the next most recent timely election or modification thereof; provided, however, that the Board may, in its sole discretion and without any obligation to do so, and in accordance with the majority vote of all members of the Board excluding the affected Eligible Director, approve such attempted modification as if it had been effective.
If distributions are to be made in installments, the amount of each installment shall be equal to the balance of the Deferred Account as of the Valuation Date preceding the date of distribution of the installment, divided by the number of installment payments remaining (including that installment). If the Eligible Director dies prior to the receipt of all installment distributions, the balance of the Deferred Account shall be distributed to his or her Beneficiary in a single lump sum. For this purpose, the balance of the Deferred Account shall be determined as of the Valuation Date immediately preceding the date of payment.
(d) In the event of an Eligible Directors death prior to the distribution date established pursuant to Section 6(b), above, his or her Beneficiary shall receive the balance of the Eligible Directors Deferred Account in a single lump sum as soon as practicable following the Eligible Directors death. For purposes of this Section 6(d), the balance of the Deferred Account shall be the balance as of the Valuation Date preceding payment.
(e) Any amount distributed to an Eligible Director or Beneficiary under this Plan shall be subject to all applicable tax withholdings and other deductions mandated by law.
7. | Designation of Beneficiary . |
(a) Each Eligible Director shall file with the Company a written designation, in the form prescribed by the Company, of one or more persons as Beneficiary to receive the balance of the Eligible Directors Deferred Account upon his or her death. For this purpose, the balance of the Deferred Account shall be the balance as of the Valuation Date preceding payment. The Eligible Director may, from time to time, revoke or change his or her Beneficiary designation by filing a new designation with the Company. The last such designation received by the Company shall be controlling; provided, however, that no designation, change or revocation thereof, shall be effective unless received by the Company prior to the Eligible Directors death.
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(b) If no such Beneficiary designation is in effect at the time of the Eligible Directors death, or if no designated Beneficiary survives the Eligible Director, the payment of the amount, if any, payable under the Plan upon his or her death shall be made to the Eligible Directors estate.
8. | Amendment or Termination . |
(a) The Board reserves the right at any time to amend or terminate the Plan in whole or in part, retroactively or prospectively, for any reason and without the consent of any Eligible Director or Beneficiary, provided that no such amendment may adversely affect the rights of an Eligible Director or a Beneficiary with respect to amounts credited to the Eligible Directors Deferred Account prior to such amendment.
(b) Upon termination of the Plan, the balance of each Eligible Directors Deferred Account shall be distributed to the Eligible Director in a single lump sum, based on the value thereof as of the Valuation Date immediately preceding the distribution.
9. | Miscellaneous . |
(a) Nothing contained in the Plan shall give the Eligible Director the right to be retained in the service of the Company.
(b) If the Company shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, the Company may direct that any amount to which such person is entitled be paid to his or her spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Company to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Plan and the Company therefor.
(c) Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, encumbrance or garnishment by creditors of the Eligible Director or his or her Beneficiary, nor be subject in any manner to the debts or liabilities of any person, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void.
(d) It is the intention of the Company that the Plan shall be unfunded for Federal income tax purposes. Accordingly, this Plan constitutes a mere promise by the Company to make payments hereunder in the future, and each Eligible Director or, if applicable, his or her Beneficiary, shall have the status of a general unsecured creditor of the Company with respect to the Plan. Except as provided by the terms of any trust established pursuant to Section 5(c), above, neither an Eligible Director nor his or her Beneficiary shall have any right, title, or interest in or to any assets which the Company may hold to aid it in meeting its obligations hereunder. Such assets, whether held in trust or otherwise, shall be unrestricted corporate assets.
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(e) All rights under this Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.
Exhibit 10(U)
DEFERRED BONUS PLAN FOR
EXECUTIVES OF BRYN MAWR BANK CORPORATION
(As Amended and Restated Effective January 1, 1999)
This is the DEFERRED BONUS PLAN FOR EXECUTIVES OF BRYN MAWR BANK CORPORATION (the Plan), as amended and restated effective January 1, 1999.
ARTICLE I
DEFINITIONS
The following words and phrases as used herein have the following meanings unless a different meaning is plainly required by the context:
1.1 Administrator means the person or committee, appointed by the Board of Directors, that shall be responsible for administering the Plan.
1.2 Affiliate means a corporation of which the Corporation controls, directly or indirectly, more than 50 percent of the total combined voting power of all classes of stock.
1.3 Beneficiary means the person, persons or trust designated by a Participant as direct or contingent beneficiary in the manner prescribed by the Administrator. The Beneficiary of a Participant who has not effectively designated a Beneficiary shall be the Participants estate.
1.4 Board of Directors means the Board of Directors of the Corporation.
1.5 Bonus means an amount payable to an Executive that is not part of the Executives base salary and that is payable at the discretion of a Participating Employers Board of Directors or in accordance with a Participating Employers bonus program.
1.6 Bonus Deferral means the amount of a Bonus that a Participant elects to defer in accordance with the terms of the Plan.
1.7 Code means the Internal Revenue Code of 1986, as amended.
1.8 Corporation means Bryn Mawr Bank Corporation.
1.9 Deferred Bonus Account or Account means the separate account established for each Participant as described in Section 4.1.
1.10 Effective Date means January 1, 1989. The effective date of this amendment and restatement of the Plan is January 1, 1999.
1.11 Executive means an employee of a Participating Employer who is a member of a select group of management or highly compensated employees and who is eligible to make a deferral election under the Plan. An employee will be eligible to make a deferral election under
the Plan for a Plan Year if his compensation for the prior Plan Year was at least $100,000. For purposes of this section, compensation for the prior Plan Year shall mean the employees compensation reported on Form W-2 including the bonus which was payable to the employee in such prior Plan Year, regardless of whether all or some portion of the bonus was not reported on Form W-2 as a result of being deferred under the Plan. Additionally, the Administrator may designate a newly hired employee of a Participating Employer as an Executive eligible to make a deferral election during the Plan Year in which he is hired and the following Plan Year, if such employees annualized compensation from the Participating Employer at the time of hire is expected to equal or exceed $100,000.
1.12 Hardship means an unforeseeable emergency that creates a severe financial hardship to the Participant resulting from (a) a sudden or unexpected illness or accident of the Participant, his spouse or dependent, (b) loss of the Participants property due to casualty, or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
1.13 Participant means an Executive or former Executive who elects to participate in the Plan in accordance with the terms and conditions of the Plan or who has an account in the Plan that has not been fully distributed.
1.14 Participating Employer means the Corporation and each Affiliate that has elected to participate in the Plan.
1.15 Plan Year means the calendar year.
1.16 Valuation Date means the close of business on the last business day of each calendar quarter, or such other valuation date or dates established by the Administrator.
ARTICLE II
PARTICIPATION
2.1 Eligibility . Each Executive awarded a Bonus is eligible to elect to participate in the Plan.
2.2 Participation in the Plan .
2.2.1 An Executive who desires to participate in the Plan, shall furnish to the Administrator such information (including a beneficiary designation) as the Administrator may reasonably request for the proper administration of the Plan.
2.2.2 An Executive who has satisfied Section 2.2.1 above, may elect under Section 3.1 to defer receipt of all or a specified portion of the Bonus that would otherwise be payable to such Executive for any Plan Year.
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ARTICLE III
DEFERRAL OF BONUSES
3.1 Election to Defer . An Executive who elects to participate in the Plan for any Plan Year shall deliver a properly executed election form to the Administrator, which form shall specify:
3.1.1 The amount or percentage of the Executives Bonus to be deferred;
3.1.2 The period of time (as provided for in Section 3.3) for which the Executives Bonus shall be deferred; and
3.1.3 The investment option (as provided for in Section 4.2) in which an Executives Bonus Deferral shall be deemed invested for purposes of determining income, gains and losses thereon.
3.2 Date of Filing Election . An election to defer a Bonus shall be filed by the Participant with the Administrator by March 31 of the Plan Year during which such bonus will be earned. Notwithstanding the foregoing, in the case of an Executive who is hired after the commencement of a Plan Year, an election to defer a Bonus earned in such Plan Year shall be filed by such time as is established by the Administrator but in any event prior to the time such Bonus is declared by the Participating Employers Board of Directors.
3.3 Period of Deferral . A Participant electing to defer all or any portion of a Bonus shall specify the applicable deferral period. A Participant may elect to have all or any portion of a Bonus deferred until:
3.3.1 January of the year following the year in which such Bonus would otherwise have been payable;
3.3.2 His retirement or separation from service (as provided for in Section 5.1); or
3.3.3 The Participants 65 th birthday, if later than his retirement under circumstances described in Section 5.1, below.
If no election is made by a Participant pursuant to this Section 3.3, the Participant shall be deemed to have elected option 3.3.2, above.
The amount of a Bonus that is deferred under Section 3.3.1 until January of the year following the year in which such Bonus would have otherwise been payable shall be paid in the form of a lump sum without interest or other appreciation added thereto.
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ARTICLE IV
INVESTMENT ALTERNATIVES FOR BONUS DEFERRALS
4.1 Deferred Bonus Account . A Participating Employer shall establish a Deferred Bonus Account for each Participant it employs when the Participant first makes a Bonus Deferral election under Section 3.3.2. Bonus Deferrals made under Section 3.3.2 shall be allocated to such Account on the date such Bonus Deferrals would otherwise have been paid to the Participant.
4.2 Investment Options . All Bonus Deferrals allocated under Section 4.1 shall be deemed invested in the available investment options in accordance with the elections made by the Participant. A Participant may designate a single investment option or may allocate his Bonus Deferral among any of the available options. The available investment options shall be as designated by the Corporation from time to time, which may include common stock of the Corporation.
4.3 Investment Discretion . A Participant may modify his investment directions with respect to Bonus Deferrals allocated to his Account under the Plan in accordance with the rules and procedures established by the Administrator.
4.4 Balances of Deferred Bonus Accounts . The balance of each Participants Deferred Bonus Account shall include all Bonus Deferrals made by the Participant, adjusted for income, and realized and unrealized gains and losses on their investment under Section 4.2, less any amounts previously distributed to the Participant. In addition, each Participants Deferred Bonus Account shall be reduced by the portion of any reasonable Plan administration or maintenance expenses allocated thereto by the Administrator. The amount of such expenses allocated to each Deferred Bonus Account shall be determined by multiplying the amount of such expenses by a fraction, the numerator of which shall be the balance of such Deferred Bonus Account as of the Valuation Date immediately preceding such allocation, and the denominator of which shall be the aggregate balance of all Deferred Bonus Accounts as of such Valuation Date. The balance of each Participants Account shall be determined as of each Valuation Date that an Account balance is maintained for the Participant.
4.5 Statement of Account . A quarterly statement shall be sent to each Participant as to the balance of his Deferred Bonus Account.
ARTICLE V
PAYMENT OF BONUS DEFERRALS
5.1 Retirement or Other Separation from Service . A Participant who has separated from service with the Corporation and its Affiliates (whether by reason of voluntary or involuntary termination, retirement, death or disability) shall begin to receive distributions of his Account as soon as administratively feasible but in no event later than 135 days following the date of separation. Notwithstanding the preceding sentence, however, in the case of a Participant who will separate from service on or after his early retirement date under the Participating Employers tax-qualified defined benefit pension plan, such Participant may make an election to defer distributions of his Deferred Bonus Account until his 65 th birthday, provided such election is made at least one year prior to his separation from service date.
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5.2 Method of Payment . A Participant who has elected to make Bonus Deferrals shall specify the applicable method of payment no later than the end of the calendar year preceding the calendar year in which payment shall commence. A Participant may elect only a single method of payment with respect to all Bonus Deferrals and his or her Account Balance attributable thereto. A Participant may elect to have his Account paid:
5.2.1 As a single lump sum;
5.2.2 In annual installments over a period of five (5) years; or
5.2.3 In annual installments over a period of ten (10) years.
In the absence of a timely election by a Participant, the Participant will be deemed to have elected the method set forth in Section 5.2.1, above.
If the Participant elects the method set forth in Section 5.2.2 or 5.2.3, each annual installment shall be equal to the amount determined by dividing the balance of the Deferred Bonus Account as of the Valuation Date immediately preceding the payment of that installment by the number of installment payments remaining (including that installment).
Notwithstanding any prior elections by a Participant to the contrary, the Beneficiary of a deceased Participant may elect, with the approval of the Administrator, to receive distribution of the Participants entire Account in a single lump sum.
5.3 In-Service Hardship Distributions . A Participant may request that all or a portion of his Account be distributed at any time prior to termination of employment by submitting a written request to the Administrator, provided that the Participant has incurred a Hardship, and that the distribution is only in an amount reasonably needed to alleviate such Hardship (including a reasonable amount to enable the Participant to pay taxes on the distribution). In determining whether the Hardship distribution request should be approved, the Administrator shall be entitled to rely on the Participants representation that the Hardship cannot be alleviated:
5.3.1. through reimbursement or compensation by insurance or otherwise;
5.3.2. by reasonable liquidation of the Participants assets, to the extent such liquidation would not itself cause severe financial hardship; or
5.3.3. by cessation of Bonus Deferrals under the Plan and all other compensation deferral plans maintained by the Corporation.
5.4. Administration of Hardship Distributions . Distributions to alleviate a Hardship shall be made in a lump sum as soon as administratively feasible after the Administrator has reviewed and approved the request.
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ARTICLE VI
GENERAL PROVISIONS
6.1 Participants Rights Unsecured . The right of any Participant to receive future payments under the provisions of the Plan shall be an unsecured claim against the general assets of the Participating Employer by whom the Participant was last employed preceding the time that payments are scheduled to begin. To the extent that a Participating Employer makes payment of bonus deferrals to any trust or to any other fund or arrangement to provide for such payments, the trust, fund or other arrangement shall remain part of such Participating Employers general assets and no person claiming payments under the Plan shall have any right, title or interest in or to any trust, fund or other arrangement.
6.2 Claims Procedures .
6.2.1 A Participant or, in the event of the Participants death, the Participants Beneficiary, may file a written claim for payment hereunder with the Administrator. In the event of a denial of any payment due to or requested by the Participant or Beneficiary (the claimant), the Admnistrator will give the claimant written notification containing specific reasons for the denial. The written notification will contain specific reference to the pertinent provisions of this Plan on which the denial of the claim is based. In addition, it will contain a description of any other material or information necessary for the claimant to perfect a claim, and an explanation of why such material or information is necessary. The notification will provide further appropriate information as to the steps to be taken if the claimant wishes to submit the claim for review. This written notification will be given to a claimant within ninety (90) days after receipt of the claim by the Administrator unless special circumstances require an extension of time for processing the claim.
6.2.2 In the event of a denial of a claim for benefits, the claimant or a duly authorized representative will be permitted to review pertinent documents and to submit issues and comments in writing to the Administrator. In addition, the claimant or a duly authorized representative may make a written request for a full and fair review of the claim and its denial by the Administrator; provided, however, that such written request is received by the Administrator (or its delegate) within sixty (60) days after receipt by the claimant of written notification of the denial. The sixty (60) day requirement may be waived by the Company in appropriate cases.
6.2.3 A decision on review of a claim for benefits will be rendered by the Administrator within sixty (60) days after the receipt of the request. Under special circumstances, an extension (up to an additional 60 days) can be granted for processing the decision. This extension must be provided in writing to the claimant prior to the expiration of the initial sixty day period. In no event will the decision be rendered more than one-hundred twenty (120) days after the initial request for review. Any decision by the Administrator will be furnished to the claimant in writing and will set forth the specific reasons for the decision and the specific provisions on which the decision is based.
6.3 Employment Rights . The establishment of the Plan shall not be construed as conferring any rights upon any Executive with respect to continuation of employment, nor shall it be construed as limiting in any way the right of a Participating Employer to discharge any Executive.
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6.4 Assignability . Except for naming the Beneficiary of any amounts payable or that may become payable hereunder upon the Participants death, no right to receive any payments hereunder shall be transferable or assignable by a Participant. Any other attempted assignment or alienation of payments hereunder shall be void and of no force or effect.
6.5 Administration . Except as otherwise provided herein, the Plan shall be administered by the Administrator, which shall have the authority to adopt rules and regulations for carrying out the Plan, and which shall interpret, construe and implement the provisions of the Plan.
6.6 Amendment and Termination . The Plan may at any time or from time to time be amended, modified, or terminated by the Board of Directors. No amendment, modification, or termination shall, without the consent of a Participant, adversely affect the balance standing to the credit of the Participants Deferred Bonus Account.
6.7 Controlling Law . This Plan shall be governed by the laws of the Commonwealth of Pennsylvania except as such laws are superseded by the Employee Retirement Income Security Act of 1974, as amended.
6.8 Number and Gender . Words used in the masculine shall be read and construed in the feminine where applicable. Wherever required, the singular of any word shall include the plural, and plural shall include the singular.
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Exhibit 13
Commission File No. 0-15261
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Year Ended December 31, 2006
BRYN MAWR BANK CORPORATION
Dear Fellow Shareholders
During the past six years, we have made a lot of progress. We have built three new banking offices and increased our banking assets almost two-fold. Our growth rate, which was under 4% in the decade of the 90s, is now in double digits. Our Wealth Management assets in the past few years have grown from $1.5 billion to over $2.5 billion.
Ted Peters
Chairman and Chief Executive Officer
Its always a pleasure to write to you, but especially so this year after our terrific performance in 2006. Our earnings were up 12% over 2005, despite spending hundreds of thousands of dollars later in the year on new initiatives designed to bolster our future profitability.
Our excellent key financial ratios, including our return-on-assets and return-on-equity figures, place us among the top performing banks in the nation.
Lets start by re-capping our initiatives and accomplishments for this past year.
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We started an equipment leasing company in September that is national in scope. Our initial results are exceeding projections and we hope to reach breakeven status by the third-quarter of this year. Jim Zelinskie, a seasoned leasing executive, heads this new company. |
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In October, we opened a Loan Production Office in West Chester, the county seat of one of the fastest growing counties in Pennsylvania. Staffing this office are Dave Glarner and Pete DAngelo, two very experienced and well-known Chester County business lenders. |
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We completed the construction of our new Ardmore Office and opened for business there just after the first of this year. It is a stunning building and we are excited about our future in that community. The early results from this new branch are encouraging. |
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Our two other recently opened new branchesNewtown Square and Extonare both exceeding their original deposit and loan projections. Both these offices fit into our strategy of building large, full-service offices in prime (although expensive!) locations. |
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Net Interest Income shows a 6.4% increase in 2006.
Average loans increased 9.3% in 2006.
2006 Wealth Management assets up 11.9%. |
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We hired Matt Waschull, a top executive at one of our larger competitors, to head up our Wealth Management Division. Matt is what I would call a real pro and Im sure he will lead this successful division to even greater heights. |
Now lets talk about our new initiatives for 2007!
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Our Wealth Management Division will be adding an open-platform, separately-managed account product. This will become our primary process for handling new investment management clients and those existing clients that we can appropriately migrate over to this product. |
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We are currently forming a Private Banking Group that will handle the deposit, lending, investment, and other financial needs of our most affluent clients. |
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During 2007, we will be building a large regional banking office in West Chester. This office will house a business lending unit and an investment management department, as well as a regular full-service retail banking office. This facility is scheduled to open early in 2008. |
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We are introducing a new product this year for our business clients called EZ Banking. EZ Banking will allow clients to process deposits right at their place of business and then transfer these deposits electronically to the Bank. |
During the past six years, we have made a lot of progress. We have built three new banking offices and increased our banking assets almost two-fold. Our growth rate, which was under 4% in the decade of the 90s, is now in double digits. Our Wealth Management assets in the past few years have grown from $1.5 billion to over $2.5 billion.
With all this good news, though, there are clear challenges to Bryn Mawr Trust and the entire banking industry. The flat yield curve and fierce competition for deposits have put intense pressure on our net interest margins, a prime component of our profitability. Greatly increased regulatory burdens, especially parts of the Sarbanes-Oxley legislation, are costing all financial institutions large sums of money to comply.
However, I can assure you that we will continue to work hard to earn your trust and support as shareholders, as well as to maintain our strong growth and profitability.
Sincerely,
Ted Peters
Chairman and Chief Executive officer
page 3
Consolidated Financial Highlights
$ in thousands, except per share data
2006 | 2005 | CHANGE | |||||||||||||
FOR THE YEAR |
|||||||||||||||
Net interest income |
$ | 33,299 | $ | 31,308 | $ | 1,991 | 6.4 | % | |||||||
Net interest income after loan and lease loss provision |
32,467 | 30,546 | 1,921 | 6.3 | |||||||||||
Non-interest income |
18,361 | 18,305 | 56 | 0.3 | |||||||||||
Non-interest expenses |
31,423 | 31,573 | (150 | ) | (0.5 | ) | |||||||||
Income taxes |
6,689 | 5,928 | 761 | 12.8 | |||||||||||
Net income |
12,716 | 11,350 | 1,366 | 12.0 | |||||||||||
AT YEAR-END |
|||||||||||||||
Total assets |
$ | 826,660 | $ | 727,226 | $ | 99,434 | 13.7 | % | |||||||
Portfolio loans and leases |
681,291 | 595,165 | 86,126 | 14.5 | |||||||||||
Total deposits |
714,489 | 636,260 | 78,229 | 12.3 | |||||||||||
Shareholders equity |
82,383 | 77,513 | 4,870 | 6.3 | |||||||||||
Wealth assets under management and administration |
2,514,824 | 2,247,630 | 267,194 | 11.9 | |||||||||||
PER COMMON SHARE |
|||||||||||||||
Basic earnings |
$ | 1.48 | $ | 1.33 | $ | 0.15 | 11.3 | % | |||||||
Diluted earnings |
1.46 | 1.31 | 0.15 | 11.5 | |||||||||||
Dividends declared |
0.46 | 0.42 | 0.04 | 9.5 | |||||||||||
Book value |
9.62 | 9.06 | 0.56 | 6.2 | |||||||||||
Closing price |
23.64 | 21.66 | 1.98 | 9.1 | |||||||||||
SELECTED RATIOS |
|||||||||||||||
Return on average assets |
1.72 | % | 1.66 | % | |||||||||||
Return on average shareholders equity |
15.65 | 15.44 | |||||||||||||
Tax equivalent net interest margin |
4.90 | 5.05 | |||||||||||||
Efficiency ratio |
60.83 | 63.64 |
Our Vision
To be the pre-eminent community bank and wealth management organization in the Philadelphia area.
page 4
Total Assets | Portfolio Loans and Leases | |
$ in millions | $ in millions | |
Total Deposits | Net Income from Continuing Operations | |
$ in millions | $ in millions | |
Diluted Earnings Per Share from Continuing Operations | Assets Under Management and Administration | |
$ in billions | ||
page 5
Our Mission
|
To operate the Corporation and its subsidiaries in a sound and ethical manner. |
|
To provide our shareholders with a return on their investment, superior to comparative bank stock indices. |
|
To provide the highest quality products and the finest service to our clients. |
|
To be an active and contributing member of the communities we serve. |
|
To provide a working environment for our employees that is supportive, challenging, positive and fair. |
Geoffrey L. Halberstadt, Senior Vice President and Risk
Management Officer and Robert J. Ricciardi, Executive
Vice President and Chief Credit Policy Officer
page 6
Our Value Proposition
|
At Bryn Mawr Trust we have only the highest quality banking and investment services. Our staff consists of well-trained professionals who understand that friendly and prompt service is of the utmost importance to our clients. |
|
All clients have access to senior management, including the President. |
|
Bryn Mawr Trust has been an independent local bank and trust company for over a century. We are truly community bankers, dedicated to making the Philadelphia area a better place for residents and businesses. |
Alison E. Gers, Executive Vice President, Retail
Banking,
|
page 7
Our Core Strategies
|
Continue to expand the Banks footprint. Open a Chester County regional office to include Wealth and Commercial Lending staff. |
|
Concentrate on our four competenciesWealth, Business Banking, High Touch Retail Banking, and Mortgage Banking. |
|
Increase loans and deposits 8 12% per year. Maximize net interest margin. |
|
Obsession with client service. Constant emphasis and monitoring by all levels of management. |
|
Build an aggressive sales culture. Expand and enhance the Share-the-Client program. Continue to develop incentive compensation programs that emphasize new business development. |
|
Maintain a close control on expenses. |
Commercial Bankings Senior Vice President and
Senior
|
page 8
Year in Review
The year 2006 was notable for the establishment of initiatives designed for the betterment of the interests of shareholders, clients and the residents and businesses in the communities within our market area.
INITIATIVES UNDERTAKEN FOR THE BENEFIT OF CURRENT AND POTENTIAL SHAREHOLDERS
In April, the Corporation established quarterly earnings conference calls as an integral part of our quarterly earnings process. During these calls, management reviews the quarters financial results in detail, discusses strategic direction and provides participants the opportunity to ask questions and provide feedback. Chairman Ted Peters and CFO Duncan Smith regularly participate in these calls, which are broadcast live on our web site and archived there as well.
Throughout the year 2006, Bryn Mawr Bank Corporation was represented at several investors conferences. Ted Peters and Duncan Smith presented at the following: The Keefe, Bruyette & Woods 2006 Honor Roll and Seventh Annual Community Bank Conference; The RBC Capital Markets 2006 Financial institutions Conference; and The Ryan Beck & Co. Financial Investors Conference.
PROVIDING STATE-OF-THE-ART FACILITIES FOR CLIENTS
On May 1st, ground was broken for a new branch office at the corner of West Lancaster and Ardmore Avenues in Ardmore. Officiating at the ceremony were Ted Peters, Maryam W. Phillips, Lower Merion Township Commissioner, and Bryn Mawr Bank Corporation Board Member Wendell F. Holland. Representing the projects architectural and construction firms were Lee A. Casaccio, CEO, Casaccio Architects and David E. Panichi, Chairman & CEO, TN Ward Company Builders.
BMT Leasings Vice President Paul G. Wesolowski, Senior Vice President J. Timothy Westburg, and President James A. Zelinskie, Jr. |
On June 23rd, The Bryn Mawr Trust Company announced that it had entered into an agreement to lease a property at Turner Square, at the intersection of Paoli Pike and Turner Lane, West Chester, PA. This will be our third branch in Chester County and is a continuation of our growth strategy to establish a presence in newer markets with a high concentration of businesses. In addition to serving as a full-service retail banking branch, this facility will house our Chester County Loan Production Office and designated Wealth Management professionals.
In October, to help us establish an early foothold, we opened a Loan Production Office in West Chester. There, Senior Vice Presidents Peter J. DAngelo and David W. Glarner, two very experienced and well-known Chester County business lenders, will spearhead Bryn Mawr Trusts Business Banking initiative in Chester County.
The Ardmore Office opened in early January of 2007. The 3,000 square foot building reflects the stately appearance of the Corporations home office in Bryn Mawr. The architecture beautifully adds to and complements Ardmores streetscape. The buildings dedication ceremony was held on January 15th, the day before the office was open for business. It was dedicated to former Assistant Vice President of Member Banking and long-time Ardmore resident Harold J. Thompson. Mr. Thompson, who retired in
page 9
Wealth Managements Senior Vice President Karen
A.
|
July after more than 41 years of service, is an influential figure on the Main Line, especially in the religious music communities. The dedication ceremony was presided over by Wendell F. Holland, Chairman of the Pennsylvania Public Utility Commission and Bryn Mawr Bank Corporation Board Member.
COMMUNITY DEVELOPMENT EFFORTS
In August, Bryn Mawr Trust provided the financing for a $775,000 note to The Montgomery County Redevelopment Authority: Ardmore Crossing Tax Increment Financing (TIF) District and Homebuyers Subsidy Program. The TIF project provides funding assistance to lower/moderate income homebuyers to help offset the cost of the acquisition of five condominium units in Ardmore Crossing. Bryn Mawr Trust is also providing the financing for these home purchase loans. Ardmore Crossing is an approximately 4.3 acre site that formerly housed the PECO Ardmore Service Building. The property was vacant for approximately six years and its industrial character had long been inconsistent and incompatible with the residential nature of the surrounding area.
Bryn Mawr Trusts application to participate in the Commonwealth of Pennsylvanias Educational Improvement Tax Credits Program was approved in August. As a result,
page 10
24 local schools received a total of $200,000 in grants from Bryn Mawr Trust for the purpose of supporting the scholarship programs set up by these educational organizations.
Bryn Mawr Trust is the presenting sponsor of an exciting event, First Friday, a Main Line ARTitude which takes place on the first Friday of each month, beginning with October 6, 2006. The purpose of this endeavor is to bring arts and cultural events to the communities of Ardmore, Haverford, and Bryn Mawr. There are art exhibitions at businesses and community organizations throughout these communities. Special menus are provided by participating restaurants. Two free trolleys provide transportation along a Lancaster Avenue loop.
NEW SUBSIDIARY FORMED
In September, Bryn Mawr Bank Corporation announced the formation of BMT Leasing, Inc., a wholly-owned subsidiary of the Bank engaging in small-ticket equipment leasing ($5,000 to $150,000) on a local, regional and national level. The principals of BMT LeasingJames A. Zelinskie, Jr., President; J. Timothy Westburg, Senior Vice President; and Paul Wesolowski, Controllerbring with them more than 50 years leasing experience serving clients and vendors on a national level.
WEALTH MANAGEMENT PROFESSIONALS CONTINUE TO GAIN PROMINENCE IN THE FINANCIAL INDUSTRY
Wealth Managements Senior Vice President Karen A. Fahrner was honored at the 9th Annual Women of Distinction Banquet held in December, 2006. The event is held under the auspices of the Philadelphia Business Journal and the National Association of Women Business Owners in order to recognize 25 of the regions most dynamic women, who are making headlines in their professional field and in the community.
During 2006, Bryn Mawr Trust wealth management professionals continued to be sought after for their opinions on current and future market conditions. They have been seen on CNBC, Bloomberg TV and CN8 Money Matters, heard on Bloomberg Radio and KYW Radio 1060 and quoted in Better Investing Magazine, Smart Money, and US News and World Report.
The Wealth Management Division has always felt that it is important to provide a forum for local professionals to broaden their awareness of issues that may directly or indirectly impact their practices. We believe that providing these opportunities add to their knowledge base while also providing continuing education credits. Seven of these sessions were held in 2006, including an all day seminar held in conjunction with The Brain Injury Association of Pennsylvania concerning Brain Injury Litigation and Estate Planning.
In early February of 2007, Bryn Mawr Trust welcomed the arrival of Matthew G. Waschull, CTFA, as Executive Vice President. He assumed overall leadership responsibility for the Wealth Management Division. He has over 23 years experience in the wealth management industry.
CORPORATE GOVERNANCE
Adherence to ever-increasing government regulations and requirements is extremely critical for all financial institutions. Lead Director of the Board, Francis J. Leto has been working closely with Chairman Ted Peters to keep the corporation up-to-date on various governance and compliance issues.
Board Member Francis J. Leto and Chairman & CEO Ted Peters |
page 11
Corporate Information
CORPORATE HEADQUARTERS
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
610-525-1700
www.bmtc.com
DIRECTORS
Andrea F. Gilbert
President, Bryn Mawr Hospital
Wendell F. Holland
Chairman, Pennsylvania Public Utilities
Commission
Scott M. Jenkins
President, S.M. Jenkins & Co.
David E. Lees
Senior Partner, myCIO Wealth Partners, LLC
Francis J. Leto
Attorney-at-law, Brett Senior & Associates;
President, Brandywine Abstract Company, L.P.
Britton H. Murdoch
CEO, City Line Motors;
Managing Director, Strattech Partners
Frederick C. Ted Peters II
Chairman, President and Chief Executive Officer, Bryn Mawr Bank Corporation and The Bryn Mawr Trust Company
B. Loyall Taylor, Jr.
President, Taylor Gifts, Inc.
Nancy J. Vickers
President, Bryn Mawr College
Thomas A. Williams
Retired
MARKET MAKERS
Boenning & Scattergood, Inc.
Citigroup Global Markets, Inc.
Ferris Baker Watts, Inc.
Janney Montgomery LLC
Keefe, Bruyette & Woods, Inc.
Knight Equity Markets, L.P.
Lehman Brothers, Inc.
Maxim Group LLC
McConnell Budd & Downes
Morgan Stanley & Co., Inc.
Ryan Beck & Co., Inc.
Sandler ONeill & Partners
UBS Securities LLC
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
1601 Market Street
Philadelphia, Pennsylvania 19103
REGISTRAR & TRANSFER AGENT
Mellon Investor Services LLC
PO Box 3315
South Hackensack, New Jersey 07606
www.mellon-investor.com
PRINCIPAL SUBSIDIARY
The Bryn Mawr Trust Company
A Subsidiary of Bryn Mawr Bank Corporation
EXECUTIVE MANAGEMENT
Frederick C. Ted Peters II*
Chairman, President and Chief Executive Officer
Alison E. Gers
Executive Vice President, Retail Banking, Central Sales,
Marketing, Information Systems & Operations
Joseph G. Keefer
Executive Vice President and Chief Lending Officer
Robert J. Ricciardi*
Executive Vice President, Chief Credit Policy Officer and Corporate Secretary
J. Duncan Smith*
Executive Vice President and Chief Financial Officer
Matthew G. Waschull
Executive Vice President, Wealth Management
* | Also officer of the Corporation |
BRANCH OFFICES
50 West Lancaster Avenue
Ardmore, Pennsylvania 19003
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
237 North Pottstown Pike
Exton, Pennsylvania 19341
18 West Eagle Road
Havertown, Pennsylvania 19083
3601 West Chester Pike
Newtown Square, Pennsylvania 19073
39 West Lancaster Avenue
Paoli, Pennsylvania 19301
330 East Lancaster Avenue
Wayne, Pennsylvania 19087
One Tower Bridge
West Conshohocken, Pennsylvania 19428
WEALTH MANAGEMENT DIVISION
10 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania 19010
LIMITED SERVICE OFFICES
Beaumont at Bryn Mawr Retirement Community
Bryn Mawr, Pennsylvania 19010
Bellingham Retirement Living
West Chester, Pennsylvania
Martins Run Life Care Community
Media, Pennsylvania
Rosemont Presbyterian Village
Rosemont, Pennsylvania
The Quadrangle
Haverford, Pennsylvania
Waverly Heights
Gladwyne, Pennsylvania
White Horse Village
Newtown Square, Pennsylvania 19073
OTHER SUBSIDIARIES AND FINANCIAL SERVICES
BMT Leasing, Inc.
A Subsidiary of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Joseph G. Keefer, Chairman
James A. Zelinskie, Jr., President
BMT Mortgage Company
A Division of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania Myron H. Headen, President
BMT Mortgage Services, Inc.
A Subsidiary of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Joseph G. Keefer, Chairman
Myron H. Headen, President
BMT Retirement Services
A Division of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Gilbert B. Mateer, President
BMT Settlement Services, Inc.
A Subsidiary of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Joseph G. Keefer, Chairman
Myron H. Headen, President
Insurance Counsellors of Bryn Mawr, Inc.
A Subsidiary of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Thomas F. Drennan, President
LEGAL COUNSEL
McElroy, Deutsch, Mulvaney & Carpenter, LLP
One Penn Center at Suburban Station
1617 John F. Kennedy Boulevard Suite 1500
Philadelphia, Pennsylvania 19103
page 12
Selected Financial Data
For the years ended December 31, |
2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||||||
Interest income |
$ | 45,906 | $ | 37,908 | $ | 31,347 | $ | 29,228 | $ | 29,347 | ||||||||||
Interest expense |
12,607 | 6,600 | 4,553 | 4,330 | 4,484 | |||||||||||||||
Net interest income |
33,299 | 31,308 | 26,794 | 24,898 | 24,863 | |||||||||||||||
Provision for loan and lease losses |
832 | 762 | 900 | 750 | 1,000 | |||||||||||||||
Net interest income after provision for loan and lease losses |
32,467 | 30,546 | 25,894 | 24,148 | 23,863 | |||||||||||||||
Non-interest income |
18,361 | 18,305 | 19,828 | 26,610 | 23,964 | |||||||||||||||
Non-interest expense |
31,423 | 31,573 | 31,625 | 33,437 | 31,642 | |||||||||||||||
Income before income taxes and discontinued operations |
19,405 | 17,278 | 14,097 | 17,321 | 16,185 | |||||||||||||||
Applicable income taxes |
6,689 | 5,928 | 4,752 | 6,049 | 5,543 | |||||||||||||||
Income from continuing operations |
12,716 | 11,350 | 9,345 | 11,272 | 10,642 | |||||||||||||||
Loss from discontinued operations |
| | | (1,916 | ) | (435 | ) | |||||||||||||
Net Income |
$ | 12,716 | $ | 11,350 | $ | 9,345 | $ | 9,356 | $ | 10,207 | ||||||||||
Per share data: |
||||||||||||||||||||
Earnings per common share from continuing operations: |
||||||||||||||||||||
Basic |
$ | 1.48 | $ | 1.33 | $ | 1.09 | $ | 1.30 | $ | 1.22 | ||||||||||
Diluted |
$ | 1.46 | $ | 1.31 | $ | 1.07 | $ | 1.29 | $ | 1.21 | ||||||||||
Earnings per common share: |
||||||||||||||||||||
Basic |
$ | 1.48 | $ | 1.33 | $ | 1.09 | $ | 1.08 | $ | 1.17 | ||||||||||
Diluted |
$ | 1.46 | $ | 1.31 | $ | 1.07 | $ | 1.07 | $ | 1.16 | ||||||||||
Dividends declared per share |
$ | .46 | $ | .42 | $ | 0.40 | $ | 0.40 | $ | 0.38 | ||||||||||
Weighted-average shares outstanding |
8,578,050 | 8,563,027 | 8,610,171 | 8,657,527 | 8,706,390 | |||||||||||||||
Dilutive potential common shares |
113,579 | 101,200 | 110,854 | 103,107 | 84,606 | |||||||||||||||
Weighted-average dilutive shares |
8,691,629 | 8,664,227 | 8,721,025 | 8,760,634 | 8,790,996 | |||||||||||||||
Selected financial ratios: |
||||||||||||||||||||
Tax equivalent net interest margin |
4.90 | % | 5.05 | % | 4.60 | % | 4.85 | % | 5.50 | % | ||||||||||
Net income/average total assets (ROA) |
1.72 | % | 1.66 | % | 1.45 | % | 1.98 | % | 2.01 | % | ||||||||||
Net income/average shareholders equity (ROE) |
15.65 | % | 15.44 | % | 13.67 | % | 17.76 | % | 17.26 | % | ||||||||||
Average shareholders equity to average total assets |
10.97 | % | 10.76 | % | 10.64 | % | 11.13 | % | 11.67 | % | ||||||||||
Dividends declared per share to net income per basic common share |
31.08 | % | 31.58 | % | 36.70 | % | 37.04 | % | 32.48 | % | ||||||||||
At December 31, |
2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Total assets |
$ | 826,660 | $ | 727,226 | $ | 682,946 | $ | 604,848 | $ | 577,242 | ||||||||||
Earning assets |
733,781 | 664,073 | 627,258 | 546,500 | 518,617 | |||||||||||||||
Portfolio loans and leases |
681,291 | 595,165 | 555,889 | 498,726 | 438,949 | |||||||||||||||
Deposits |
714,489 | 636,260 | 600,965 | 527,139 | 483,620 | |||||||||||||||
Shareholders equity |
82,383 | 77,513 | 71,238 | 67,382 | 62,607 | |||||||||||||||
Ratio of equity to assets |
9.97 | % | 10.66 | % | 10.43 | % | 11.14 | % | 10.85 | % | ||||||||||
Loans serviced for others |
$ | 382,141 | $ | 417,649 | $ | 507,421 | $ | 797,326 | $ | 631,105 | ||||||||||
Wealth assets under management & administration |
2,514,824 | 2,247,630 | 1,938,186 | 1,751,875 | 1,551,283 | |||||||||||||||
Book value per share |
9.62 | 9.06 | 8.29 | 7.77 | 7.21 | |||||||||||||||
Allowance as a percentage of portfolio loans and leases |
1.19 | % | 1.24 | % | 1.23 | % | 1.34 | % | 1.39 | % | ||||||||||
Efficiency ratio* |
60.83 | % | 63.64 | % | 67.83 | % | 64.92 | % | 64.80 | % |
* | Efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income. |
Note - Prior periods reclassified for comparative purposes.
1
Managements Discussion and Analysis of Financial Condition and Results of Operations
S PECIAL C AUTIONARY N OTICE R EGARDING F ORWARD L OOKING S TATEMENTS
Certain of the statements contained in this report and the documents incorporated by reference herein, may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the 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 Corporations financial goals, business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, impairment of goodwill, the effect of changes in accounting standards, and market and pricing trends. The words anticipate, believe, estimate, expect, intended, plan, may, seek and similar expressions are intended to identify such forward-looking statements. The Corporations actual results may differ materially from the results anticipated by the forward-looking statement due to a variety of factors, including without limitation:
|
the effect of future economic conditions on the Corporation and its customers, including economic factors which affect consumer confidence in the securities markets, wealth creation, investment and savings patterns, and the Corporations interest rate risk exposure and credit risk; |
|
changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets; |
|
governmental monetary and fiscal policies, as well as legislation and regulatory changes; |
|
changes in accounting requirements or interpretations; |
|
the risks of changes in interest rates on the level and composition of deposits, loan demand, and the value of loan collateral and securities, as well as interest rate risk; |
|
the effects of competition from other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in the Corporations trade market area 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; |
|
any extraordinary event (such as the September 11, 2001 events, the war on terrorism and the U.S. Governments response to those events including the war in Iraq); |
|
the Corporations success in continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time; |
|
the Corporations ability to continue to generate investment results for customers and the ability to continue to develop investment products in a manner that meets customers needs; |
|
the Corporations timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers; |
|
the Corporations ability to originate, sell and service residential mortgage loans; |
|
the accuracy of assumptions underlying the establishment of reserves for loan losses and estimates in the value of collateral, the market value of mortgage servicing rights and various financial assets and liabilities; |
|
technological changes being more difficult or expensive than anticipated; |
|
the Corporations success in managing the risks involved in the foregoing. |
All written or oral forward-looking statements attributed to the corporation are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this report are based upon information presently available, and the corporation assumes no obligation to update any forward-looking statement.
2
B RIEF H ISTORY OF THE C ORPORATION
The Bryn Mawr Trust Company (the Bank) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the Corporation) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, PA, a western suburb of Philadelphia, PA. The Corporation and its subsidiaries offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax planning and preparation from eight full-service branches and seven limited-hour retirement community offices throughout Montgomery, Delaware and Chester counties. The Corporation trades on the NASDAQ Global Market under the symbol BMTC.
The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.
The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many regulatory agencies including the SEC, NASD, FDIC, the Federal Reserve and the Pennsylvania Department of Banking.
R ESULTS OF O PERATIONS
The following is Managements discussion and analysis of the significant changes in the results of operations, capital resources and liquidity presented in its accompanying consolidated financial statements for the Corporation. The Corporations consolidated financial condition and results of operations consist almost entirely of the Banks financial condition and results of operations. Current performance does not guarantee, and may not be indicative of similar performance in the future.
C RITICAL A CCOUNTING P OLICIES , J UDGMENTS AND E STIMATES
The accounting and reporting policies of the Corporation and its subsidiaries conform with accounting principles generally accepted in the United States of America applicable to the financial services industry (Generally Accepted Accounting Principles GAAP). All significant inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous years financial statements to the current years 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 involves a higher degree of judgment and complexity than other significant accounting policies. The allowance for loan and lease losses is calculated with the objective of maintaining a reserve level believed by Management to be sufficient to absorb estimated probable credit losses. Managements determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, expected loan commitment usage, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on consumer loans and residential mortgages and general amounts for historical loss experience. The process also considers economic conditions, international events, and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from Management estimates, additional provisions for loan and lease losses may be required that would adversely impact earnings in future periods.
Other significant accounting policies are presented in Note 1 in the accompanying financial statements. The Corporations Summary of Significant Accounting Policies has not substantively changed any aspect of its overall approach in the application of the foregoing policies. There have been no material changes in assumptions or estimation techniques utilized as compared to prior periods.
E XECUTIVE O VERVIEW
2006 Compared to 2005
Bryn Mawr Bank Corporation reported net income for year ended December 31, 2006 of $12.716 million, an increase of 12.0% or $1.366 million, compared to $11.350 million in 2005. Diluted earnings per share for the year ended December 31, 2006, were $1.46, an increase of $0.15 or 11.5%, compared with $1.31 in 2005. Return on average equity (ROE) and return on average assets (ROA) for 2006 were 15.65% and 1.72%, respectively. ROE was 15.44% and ROA was 1.66% for 2005. Management is pleased with the strong results during the year, especially considering the difficult interest rate environment and the costs associated with starting a leasing company, opening a loan production office and the new Ardmore branch.
The major factor contributing to the increase in earnings for the full-year 2006 compared to the full-year 2005 was a $2.091 million or 6.6% increase in the Corporations tax equivalent net interest income to $33.655 million from
3
$31.564 million in 2005, principally loan volume driven, despite a decrease in the tax equivalent net interest margin of 15 basis points to 4.90% in 2006 from 5.05% in 2005. Also contributing to the increase in earnings was a nominal decrease in overall non-interest expense of $150 thousand as total non-interest expenses were $31.423 million. Additionally, fees for Wealth Management services increased 7.7% or $883 thousand to $12.422 million in 2006 versus $11.539 million in 2005, partially offsetting declines in residential mortgage-related revenues.
Asset quality remains strong with non-performing assets of $0.8 million at December 31, 2006, which represent 0.10% of total assets. While the allowance for loan and lease losses (allowance) increased to $8.122 million at December 31, 2006 from $7.402 million at December 31, 2005, the allowance as a percentage of portfolio loans decreased to 1.19% from 1.24% over the same time period. The decrease in the allowance as a percentage of portfolio loans is attributed to strong loan growth in the second and third quarters of 2006 and continued strength in asset quality. Net loan charge-offs were $112 thousand and $287 thousand for the years ended December 31, 2006 and 2005, respectively.
Portfolio loans increased $86.1 million or 14.5% to $681.3 million at December 31, 2006 from $595.2 million at December 31, 2005, reflecting a significant increase in commercial mortgage and construction loan closings in the second and third quarters of 2006. Also contributing to the growth was the formation of BMT Leasing Inc., a small ticket equipment leasing business and a wholly owned subsidiary of the Bank, which added $7.0 million in balances since its opening in September of 2006. Fourth quarter 2006 average loans increased $77.7 million or 13.1% over fourth quarter 2005 average loans. The Corporation recently opened a business loan production office in downtown West Chester, Pennsylvania to help further this growth.
Chester County continues to offer some of the most attractive expansion opportunities for our franchise, and establishing this presence in the heart of West Chester, the county seat of Chester County, is expected to help the Corporation capitalize on those opportunities. The Corporation recently hired two locally well known and highly experienced business lenders to head up the new loan production office in West Chester.
The Corporations interest bearing liabilities at December 31, 2006 include approximately $65 million in market rate wholesale certificates, which includes Pennsylvania Local Government Investment Trust (PLGIT) CDs and short-term borrowings, compared with $5 million at December 31, 2005. Deposit balances at December 31, 2006 and 2005 reflect approximately $35 million and $25 million, respectively, in demand deposit balances that represent short term in-flows from customer year-end activity. Total deposits, including the short term in-flows were $714.5 million and $636.2 million at December 31, 2006 and 2005, respectively. This represents a year over year increase in total deposits of $78.2 million or 12.3%.
The Corporation adopted Statement of Financial Accounting Standards No. 158 Employers Accounting for Defined Benefit Pension Plans and Other Postretirement Plans (FAS 158) on December 31, 2006. As a result of its adoption, the Corporation recorded additional pension liabilities of approximately $6.5 million, deferred taxes of approximately $2.3 and a reduction of accumulated other comprehensive income (shareholders equity) of approximately $4.2 million effective December 31, 2006.
The reduction in shareholders equity does not have an impact on regulatory capital, as Federal bank and thrift regulatory agencies announced an interim decision in December 2006 that FAS 158 will not affect banking organizations regulatory capital in 2006. The Federal bank and thrift regulatory agencies have not made any announcements as to the impact of FAS 158 on regulatory capital in 2007 and beyond.
During the last twelve months, the Corporation has seen a shift in the mix of its core deposits as some lower cost interest bearing checking, money market accounts and savings accounts moved into higher yielding certificates of deposit. This shift in the core deposit mix is a national trend as many financial institutions are having similar experiences. The utilization of market rate wholesale funding, the shift in deposit mix and the increase in interest rates resulted in overall funding costs rising faster than the yield on interest earning assets. The Corporation anticipates that funding for 2007 earning asset growth will be predominately wholesale funding as core deposit growth remains very difficult.
At December 31, 2006, the Corporation had over $248 million in unused borrowing capacity at the Federal Home Loan Bank of Pittsburgh, together with unused capacity under federal funds lines at other financial institutions of $68 million.
Over the next year and in 2008, The Bryn Mawr Trust Company expects to continue with the expansion of its retail banking footprint with controlled de novo expansion in the suburban Philadelphia market. The Corporations new Ardmore branch was opened on January 16, 2007, with a dedication ceremony honoring a long-time employee. The planned full service West Chester branch is scheduled to open in first half of 2008.
In the first quarter of 2007 the Corporation sold the property that previously served as the Wynnewood branch location to an independent third party for $1.850 million. The book value of the property was $443 thousand.
4
2005 Compared to 2004
The Corporation had net income of $11.350 million for the year ended December 31, 2005, an increase of 21.5% or $2.005 million compared with $9.345 million in 2004. Diluted earnings per share for 2005 were $1.31, an increase of $0.24 or 22.4% compared with $1.07 in 2004. ROE and ROA for 2005 were 15.44% and 1.66%, respectively. ROE was 13.67% and ROA was 1.45% in 2004. Management attributes the success in 2005 to a focus on the Corporations core competencies which include Wealth, Business Banking, High Touch Retail Banking and Mortgage Banking, along with an obsession on client service, close control over expenses and the development of a more assertive sales culture.
The major factor contributing to the increase in earnings for 2005 compared to 2004 was a 45 basis point or 9.8% increase in the Corporations tax equivalent net interest margin to 5.05% from 4.60% as the Corporations asset sensitive loan portfolio benefited from a series of Federal Reserve interest rate increases. Tax equivalent net interest income for 2005 increased $4.620 million or 17.1%, to $31.564 million from $26.944 million in the same period last year. Additionally, fees for Wealth Management services increased 12.0% or $1.236 million to $11.539 million in 2005 versus $10.303 million in 2004, partially offsetting declines in residential mortgage-related revenues.
In 2004, the Corporation sold mortgage-servicing rights (MSRs) that contributed $572 thousand to after tax income and increased diluted earnings per share $0.07. There were no sales of MSRs in 2005. Net income and diluted earnings per share for 2004, excluding the after tax impact of the MSRs sale, would have been $8.773 million and $1.01 per share, respectively. Excluding the impact of the MSRs sale, 2005 net income increased $2.577 million or 29.4% and diluted earnings per share increased $0.30 or 29.7% over the same period last year. (See accompanying reconcilement of GAAP net income and diluted earnings per share to net income and diluted earnings per share that exclude the MSRs sale).
Total loans increased $33.3 million or 5.9% to $597.9 million from $564.6 million in 2005 and average loans for 2005 increased $43.6 million or 8.1% to $582.4 million compared to $538.8 million in 2004. The Corporations asset quality remains strong as non-performing loans as a percent of total loans was 0.07% at December 31, 2005.
Total deposits grew $35.3 million or 5.9% over the past 12 months to $636.3 million at December 31, 2005 from $601.0 million at December 31, 2004. Average deposits for 2005 increased $32.7 million or 5.8% to $596.4 million compared to $563.7 million in 2004 with over 85% of the deposit growth coming from higher rate certificates of deposit, reflecting the competitive nature of the deposit gathering business in the Corporations market area.
Reconcilement of Non-GAAP Information
See the table below for a reconcilement of GAAP net income, diluted earnings per share, non-interest income and non-interest expense to comparable data that excludes the MSRs sale. Management believes that the presentation provides useful supplemental information essential to the proper understanding of the operating results of the Corporations core business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures, which may be presented by other companies.
Net Income | Diluted Earnings Per Share | |||||||||||||||||||
(dollars in thousands except per share data) |
Year Ended December 31, | |||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004* | |||||||||||||||
As reported |
$ | 12,716 | $ | 11,350 | $ | 9,345 | $ | 1.46 | 1.31 | $ | 1.07 | |||||||||
After tax effect of MSR sale |
| | (572 | ) | | | (0.07 | ) | ||||||||||||
Adjusted for sale |
$ | 12,716 | $ | 11,350 | $ | 8,773 | $ | 1.46 | 1.31 | $ | 1.01 | |||||||||
Non-Interest Income | Non-Interest Expense | |||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||
As reported |
$ | 18,361 | $ | 18,305 | $ | 19,828 | 31,423 | $ | 31,573 | $ | 31,625 | |||||||||
MSR sale income |
| | 1,145 | | | | ||||||||||||||
MSR sale expenses |
| | | | | 266 | ||||||||||||||
Adjusted for sale |
$ | 18,361 | $ | 18,305 | $ | 18,683 | 31,423 | $ | 31,573 | $ | 31,359 | |||||||||
* | Column does not foot due to rounding. |
5
C OMPONENTS OF N ET I NCOME
Net income is affected by five major elements: Net Interest Income , or the difference between interest income and loan fees earned on loans and investments and interest expense paid on deposits and borrowed funds; The Provision For Loan and Lease Losses , or the amount added to the allowance for loan and lease losses to provide reserves for estimated inherent losses on loans and leases; Non-Interest Income which is made up primarily of certain fees, wealth revenue, residential mortgage activities and gains and losses from the sale of securities; Non-Interest Expense , which consists primarily of salaries, employee benefits and other operating expenses; and Income Taxes . Each of these major elements will be reviewed in more detail in the following discussion.
N ET I NTEREST I NCOME
Rate/Volume Analyses (Tax Equivalent Basis)
The rate volume analysis in the table below analyzes changes in tax equivalent net interest income for the year ended December 31, 2006 over December 31, 2005 and December 31, 2005 over December 31, 2004 by its rate and volume components. The change in interest income/expense due to both volume and rate has been allocated to changes in volume.
Year Ended December 31, | |||||||||||||||||||||
2006 Compared to 2005 | 2005 Compared to 2004 | ||||||||||||||||||||
(dollars in thousands) Increase/(decrease) |
Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||
Interest Income: |
|||||||||||||||||||||
Interest-bearing deposits with other banks |
$ | (57 | ) | $ | 11 | $ | (46 | ) | $ | (11 | ) | $ | 39 | $ | 28 | ||||||
Federal funds sold |
(108 | ) | 44 | (64 | ) | (99 | ) | 118 | 19 | ||||||||||||
Investment securities available for sale |
391 | 434 | 825 | 117 | 18 | 135 | |||||||||||||||
Loans |
3,415 | 3,968 | 7,383 | 2,738 | 3,747 | 6,485 | |||||||||||||||
Total interest income |
3,641 | 4,457 | 8,098 | 2,745 | 3,922 | 6,667 | |||||||||||||||
Interest expense: |
|||||||||||||||||||||
Savings, NOW and market rate accounts |
(217 | ) | 1,323 | 1,106 | (59 | ) | 804 | 745 | |||||||||||||
Time & wholesale deposits |
1,545 | 2,371 | 3,916 | 825 | 430 | 1,255 | |||||||||||||||
Borrowed Funds |
594 | 391 | 985 | 29 | 18 | 47 | |||||||||||||||
Total interest expense |
1,922 | 4,085 | 6,007 | 795 | 1,252 | 2,047 | |||||||||||||||
Interest differential |
$ | 1,719 | $ | 372 | $ | 2,091 | $ | 1,950 | $ | 2,670 | $ | 4,620 | |||||||||
Analyses 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, | ||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | ||||||||||||||||||||||||||||
(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 other banks |
$ | 609 | $ | 30 | 4.93 | % | $ | 2,398 | $ | 76 | 3.17 | % | $ | 3,079 | $ | 48 | 1.56 | % | ||||||||||||
Federal funds sold |
3,053 | 146 | 4.78 | % | 6,281 | 210 | 3.34 | % | 13,052 | 191 | 1.46 | % | ||||||||||||||||||
Investment securities available for sale: |
||||||||||||||||||||||||||||||
Taxable |
41,489 | 1,790 | 4.31 | % | 29,400 | 958 | 3.26 | % | 25,799 | 820 | 3.18 | % | ||||||||||||||||||
Tax Exempt |
4,993 | 237 | 4.75 | % | 5,069 | 244 | 4.81 | % | 5,071 | 247 | 4.87 | % | ||||||||||||||||||
Total investment securities |
46,482 | 2,027 | 4.36 | % | 34,469 | 1,202 | 3.49 | % | 30,870 | 1,067 | 3.46 | % | ||||||||||||||||||
Loans (1) |
636,286 | 44,059 | 6.92 | % | 582,386 | 36,676 |
6.30
|
% |
538,775 | 30,191 | 5.60 | % | ||||||||||||||||||
Total interest earning assets |
686,430 | 46,262 | 6.74 | % | 625,534 | 38,164 | 6.10 | % | 585,776 | 31,497 | 5.38 | % | ||||||||||||||||||
Cash and due from banks |
25,358 | 29,918 | 32,774 | |||||||||||||||||||||||||||
Allowance for loan and lease losses |
(7,828 | ) | (7,283 | ) | (6,957 | ) | ||||||||||||||||||||||||
Other assets |
36,737 | 34,760 | 31,201 | |||||||||||||||||||||||||||
Total assets |
$ | 740,697 | $ | 682,929 | $ | 642,794 | ||||||||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||
Savings, NOW and market rate accounts |
$ | 292,075 | $ | 3,850 | 1.32 | % | $ | 317,205 | $ | 2,744 | 0.87 | % | $ | 323,972 | $ | 1,999 | 0.62 | % | ||||||||||||
Time & wholesale deposits |
183,744 | 7,715 | 4.20 | % | 130,667 | 3,799 | 2.91 | % | 102,369 | 2,544 | 2.49 | % | ||||||||||||||||||
Total interest-bearing deposits |
475,819 | 11,565 | 2.43 | % | 447,872 | 6,543 | 1.46 | % | 426,341 | 4,543 | 1.07 | % | ||||||||||||||||||
Short term borrowings |
19,442 | 1,042 | 5.36 | % | 1,700 | 57 | 3.35 | % | 850 | 10 | 1.18 | % | ||||||||||||||||||
Total interest-bearing liabilities |
495,261 | 12,607 | 2.55 | % | 449,572 | 6,600 | 1.47 | % | 427,191 | 4,553 | 1.07 | % | ||||||||||||||||||
Demand deposits - non-interest-bearing |
150,042 | 148,495 | 137,336 | |||||||||||||||||||||||||||
Other liabilities |
14,136 | 11,370 | 9,900 | |||||||||||||||||||||||||||
Total non-interest-bearing liabilities |
164,178 | 159,865 | 147,237 | |||||||||||||||||||||||||||
Total liabilities |
659,439 | 609,437 | 574,427 | |||||||||||||||||||||||||||
Shareholders equity |
81,258 | 73,492 | 68,367 | |||||||||||||||||||||||||||
Total liabilities and shareholders equity |
$ | 740,697 | $ | 682,929 | $ | 642,794 | ||||||||||||||||||||||||
Net interest spread |
4.19 | % | 4.63 | % | 4.31 | % | ||||||||||||||||||||||||
Effect of non-interest-bearing sources |
0.71 | % | 0.42 | % | 0.29 | % | ||||||||||||||||||||||||
Net interest income/margin on earning assets |
$ | 33,655 | 4.90 | % | $ | 31,564 | 5.05 | % | $ | 26,944 | 4.60 | % | ||||||||||||||||||
Tax equivalent adjustment |
$ | 356 | 0.05 | % | $ | 256 | 0.04 | % | $ | 150 | 0.03 | % | ||||||||||||||||||
(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 |
6
Net Interest Income 2006 Compared to 2005
Net interest income on a tax equivalent basis amounted to $33.655 million for the year ended December 31, 2006, an increase of $2.091 million or 6.6% from the $31.564 million of net interest income earned in the prior year. Virtually all of the increase in net interest income in 2006 was volume related, unlike the prior year when the major portion of the increase was attributable to interest rate changes. During 2005, short term interest rates increased frequently throughout the year. During 2006, short term interest rates increased early in the year but stabilized in June 2006. While the yield curve was generally positively sloped for most of 2005, it became relatively flat and even inverted during 2006. With the Corporation being asset sensitive, it benefited in the increasing interest rate environment in 2005. While the Corporation continued to benefit from rising short term interest rates early in 2006, this benefit was partially offset by the increasing cost of funding loan growth as the deposit market environment became increasingly challenging. To satisfy loan demand, the Corporation utilized more costly time and wholesale deposits together with outside borrowings to a greater extent than in previous years.
Average interest earning assets increased $60.9 million or 9.7% to $686.4 million during 2006 compared to $625.5 million during 2005. The largest portion of this increase in average interest earning assets was attributable to loan growth. Average loans increased by $53.9 million or 9.3% to $636.3 million during 2006 compared to $582.4 million during 2005. Average interest bearing liabilities increased by $45.7 million or 10.2% to $495.3 million during 2006 compared to $449.6 million during 2005. Time deposits, wholesale deposits and short term borrowings were the largest factors contributing to the increase in average interest bearing liabilities.
The net interest spread decreased by 44 basis points to 4.19% for the year ended December 31, 2006 from 4.63% in the earlier year. While the yield on interest earning assets increased 64 basis points to 6.74% for the year ended December 31, 2006, it was more than offset by the cost of interest bearing liabilities increasing 108 basis points from 1.47% during 2005 to 2.55% during 2006. The increase in the cost of interest bearing liabilities is attributable to increases in rate and additional volume.
The net interest margin on interest earning assets decreased by 15 basis points from 5.05% during 2005 to 4.90% during 2006. The net interest margin decline of 15 basis points was significantly less than the net interest spread decline of 44 basis points reflecting the positive effect that non-interest bearing sources had in supporting interest earning assets. The Corporations average interest earning assets exceeded the average interest bearing liabilities by $191.2 million in 2006 compared to $176.0 million in 2005. This effect on net interest margin was 71 basis points in 2006 compared to 42 basis points in 2005.
Net Interest Income 2005 Compared to 2004
Tax equivalent net interest income for the year ended December 31, 2005 of $31.564 million was $4.620 million or 17.1% higher than the tax equivalent net interest income for the same period in 2004 of $26.944 million. The rate/volume analyses above indicate that both increased loan volume and an increase in rates contributed to the increase in net interest income. Average earning assets increased $39.8 million or 6.8% in 2005 compared to the same period in 2004. Average total loans grew $43.6 million or 8.1% in 2005 compared to 2004.
The average earning asset yield during 2005 of 6.10% was 72 basis points higher than the 5.38% during the same period in 2004. The rate paid on average interest bearing liabilities of 1.47% in 2005 was 40 basis points higher than the 1.07% in 2004. Average non-interest-bearing demand deposits grew 8.1%, while savings decreased 2.1% and time deposits increased 27.6% in 2005 compared to 2004.
Net Interest Margin
The Corporations tax equivalent net interest margin decreased 54 basis points to 4.65% in the fourth quarter of 2006 from 5.19% in the same period last year. The tax equivalent net interest margin and related components for the past five linked quarters are shown in the table below.
The Corporation anticipates continued pressure on its tax equivalent net interest margin in the 2007 as primary funding for incremental loan and lease growth is expected to come from higher cost wholesale funding. The Corporations tax equivalent net interest margin was 4.90% in 2006 compared with 5.05% in 2005 and 4.60% in 2004. These results reflect the steady short-term rate increases throughout 2005 and early 2006 before stabilizing in June of 2006.
Year |
Earning
Asset Yield |
Interest
Bearing Liability Cost |
Net
Interest Spread |
Effect of
Non-Interest Bearing Sources |
Net Interest Margin |
||||||||||||
Net Interest Margin Last Five Quarters |
|||||||||||||||||
4 th Quarter |
2006 | 6.85 | % | 2.99 | % | 3.86 | % | 0.79 | % | 4.65 | % | ||||||
3 rd Quarter |
2006 | 6.82 | % | 2.80 | % | 4.02 | % | 0.76 | % | 4.78 | % | ||||||
2 nd Quarter |
2006 | 6.72 | % | 2.35 | % | 4.37 | % | 0.67 | % | 5.04 | % | ||||||
1 st Quarter |
2006 | 6.58 | % | 1.92 | % | 4.66 | % | 0.56 | % | 5.22 | % | ||||||
4 th Quarter |
2005 | 6.41 | % | 1.73 | % | 4.68 | % | 0.51 | % | 5.19 | % | ||||||
Net Interest Margin Last Three Years |
|||||||||||||||||
2006 | 6.74 | % | 2.55 | % | 4.19 | % | 0.71 | % | 4.90 | % | |||||||
2005 | 6.10 | % | 1.47 | % | 4.63 | % | 0.42 | % | 5.05 | % | |||||||
2004 | 5.38 | % | 1.07 | % | 4.31 | % | 0.29 | % | 4.60 | % |
7
Interest Rate Sensitivity
The Corporation actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. Managements Asset Liability Committee (ALCO), using policies and procedures approved by the Corporations Board of Directors, is responsible for managing the interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and repricing characteristics of its assets and liabilities, through the management of its investment portfolio, its offering of loan and selected deposit terms and through borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB) and selective use of interest rate floors. The ALCO continues to evaluate various strategies including interest rate swaps and floors to mitigate the impact of future changes in interest rates on its net interest income.
The Corporation uses several tools to manage its interest rate risk including interest rate sensitivity analysis (aka GAP Analysis), market value of portfolio equity analysis, interest rate simulations under various rate scenarios and net interest margin reports. The results of these reports are compared to limits established by the Corporations ALCO Policies and appropriate adjustments are made if the results are outside of established limits.
The following table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift in the yield curve and subjective adjustments in deposit pricing might have on the Corporations projected net interest income over the next 12 months.
This simulation assumes that there is no growth in the balance sheet over the next twelve months. The changes to
net interest income shown below are in compliance with the Corporations policy guidelines. Actual results may differ significantly from the interest rate simulation due to numerous factors including assumptions, the competitive environment,
Summary of Interest Rate Simulation
December 31, 2006 | |||||||
(dollars in thousands) |
Estimated Change
In Net Interest Income Over Next 12 Months |
||||||
Change in Interest Rates |
|||||||
+200 basis points |
$ | 1,226 | 3.41 | % | |||
+100 basis points |
$ | 679 | 1.89 | % | |||
-100 basis points |
$ | (688 | ) | (1.92 | %) | ||
-200 basis points |
$ | (1,292 | ) | (3.60 | %) |
The interest rate simulation above indicates that the Corporations balance sheet as of December 31, 2006 is asset sensitive, meaning that an increase in interest rates should increase net interest income and a decline in interest rates will cause a decline in net interest income over the next 12 months when compared to projected net income under a flat or stable rate scenario.
The Corporations sensitivity to changes in interest rates as measured by the Corporations interest rate
simulation model decreased from last year (a 6.10% increase for +200 basis points and a 10.76% decrease for -200 basis points), as the Corporation through direction from its ALCO added fixed rate commercial loans, residential mortgages and
mortgage-backed securities to the asset mix. Additionally, the Corporation purchased a $25 million notional, prime rate based, three-year interest rate floor in April 2006 for a total cost of $155 thousand to mitigate the impact on
GAP Report
The following table presents the Corporations interest rate sensitivity position or GAP Analysis as of December 31, 2006:
(dollars in thousands) |
0 to 90
Days |
90 to 365
Days |
1 - 5 Years |
Over 5
Years |
Non-Rate
Sensitive |
Total | |||||||||||||||||
Assets: |
|||||||||||||||||||||||
Interest-bearing deposits with banks |
$ | 532 | $ | | $ | | $ | | $ | | $ | 532 | |||||||||||
Federal funds sold |
| | | | | | |||||||||||||||||
Investment securities |
8,085 | 8,063 | 24,462 | 7,622 | | 48,232 | |||||||||||||||||
Loans (1) |
272,537 | 53,173 | 256,259 | 103,048 | | 685,017 | |||||||||||||||||
Allowance |
(290 | ) | (870 | ) | (4,641 | ) | (2,321 | ) | | (8,122 | ) | ||||||||||||
Cash and due from banks |
| | | | 61,473 | 61,473 | |||||||||||||||||
Other assets |
| | 136 | 329 | 39,063 | 39,528 | |||||||||||||||||
Total assets |
$ | 280,864 | $ | 60,366 | $ | 276,216 | $ | 108,678 | $ | 100,536 | $ | 826,660 | |||||||||||
Liabilities and shareholders equity: |
|||||||||||||||||||||||
Demand, non-interest-bearing |
$ | 42,555 | $ | 24,630 | $ | 131,361 | $ | | $ | | $ | 198,546 | |||||||||||
Savings, NOW and market rate |
48,932 | 41,428 | 157,818 | 47,343 | | 295,521 | |||||||||||||||||
Time deposits |
88,642 | 103,727 | 7,923 | 154 | | 200,446 | |||||||||||||||||
Wholesale deposits |
| 19,976 | | | | 19,976 | |||||||||||||||||
Borrowed funds |
15,000 | | | | | 15,000 | |||||||||||||||||
Other liabilities |
| | | | 14,788 | 14,788 | |||||||||||||||||
Shareholders equity |
2,942 | 8,827 | 47,076 | 23,538 | | 82,383 | |||||||||||||||||
Total liabilities and shareholders equity |
$ | 198,071 | $ | 198,588 | $ | 344,178 | $ | 71,035 | $ | 14,788 | $ | 826,660 | |||||||||||
Interest earning assets |
$ | 281,154 | $ | 61,236 | $ | 280,721 | $ | 110,670 | $ | | $ | 733,781 | |||||||||||
Interest bearing liabilities |
$ | 152,574 | $ | 165,131 | $ | 165,741 | $ | 47,497 | $ | | $ | 530,943 | |||||||||||
Difference between interest earning assets and interest bearing liabilities |
$ | 128,580 | $ | (103,895 | ) | $ | 114,980 | $ | 63,173 | $ | | $ | 202,838 | ||||||||||
Cumulative difference between interest earning assets and interest bearing liabilities |
$ | 128,580 | $ | 24,685 | $ | 139,665 | $ | 202,838 | $ | | $ | 202,838 | |||||||||||
Cumulative earning assets as a % of cumulative interest bearing liabilities |
184 | % | 108 | % | 129 | % | 138 | % |
(1) |
Loans include portfolio loans and leases and loans held for sale. |
8
The table above indicates that the Corporation is asset sensitive in the immediate to 90 day time frame and should
Maturity of Certificates of Deposit of $100,000 or Greater at December 31, 2006
(dollars in thousands) |
|||
Three months or less |
$ | 66,478 | |
Three to six months |
32,479 | ||
Six to twelve months |
19,513 | ||
Greater than twelve months |
1,866 | ||
Total |
$ | 120,336 | |
P ROVISION FOR L OAN AND L EASE L OSSES
General Discussion of the Allowance for Loan and Lease Losses
The Corporation uses the allowance method of accounting for credit losses. The balance in the allowance for loan and lease losses (allowance) is determined based on Managements review and evaluation of the loan and lease (loans) portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including Managements assumptions as to future delinquencies, recoveries and losses.
Increases to the allowance are implemented through a corresponding provision (expense) in the Corporations 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 Managements assumptions as to future delinquencies, recoveries and losses and Managements intent with regard to the disposition of loans. In addition, the Pennsylvania Department of Banking and the Federal Reserve Bank of Philadelphia, as an integral part of their examination process, periodically review the Corporations allowance.
The Corporations allowance is the accumulation of four components that are calculated based on various independent methodologies. All components of the allowance are estimations. Management discusses these estimates earlier in this document under the heading of Critical Accounting Policies, Judgments and Estimates. The four components are as follows:
|
Specific Loan Evaluation Component Includes the specific evaluation of larger classified loans |
|
Historical Charge-Off Component Applies a five year historical charge-off rate to pools of non-classified loans |
|
Additional Factors Component The loan portfolio is broken down into multiple homogenous subclassifications upon which multiple factors (such as delinquency trends, economic conditions, loan terms, and regulatory environment) are evaluated resulting in an allowance amount for each of the subclassifications. The sum of these amounts equals the Additional Factors Component. |
|
Unallocated Component This amount represents a reserve against all loans for factors not included in the components above. |
The Corporation has a material portion of its loans in real estate related loans. A predominant percentage of the Corporations real estate exposure, both commercial and residential, is in the Corporations primary trade area which includes portions of Delaware, Chester, Montgomery and Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and mitigates this risk to the extent possible in many ways, including the underwriting and assessment of the borrowers capacity to repay.
Asset Quality and Analysis of Credit Risk
Asset quality remains strong at December 31, 2006 as non-performing loans as a percentage of total loans were 12 basis points. This compares with 7 basis points at December 31, 2005 and 24 basis points at December 31, 2004. The allowance for loan and lease losses as a percentage of total loans was 1.19% at December 31, 2006 compared with 1.24% at December 31, 2005 and 1.23% at December 31, 2004. The provision for loan and lease losses in 2006 was $832 thousand compared to $s762 thousand in 2005 and $900 thousand in 2004.
While the allowance increased to $8.122 million at December 31, 2006, an increase of 9.7% from $7.402 million at December 31, 2005, the allowance as a percentage of loans decreased to 1.19%. This decrease is the result of strong loan and lease growth in the second half of 2006. Management is comfortable with the percentage decrease based on the strong asset quality in the loan and lease portfolio.
Management expects to experience higher charge-offs in its newly formed leasing business than in its historical loan portfolio. In 2006 the Corporations net charge-offs/average loan rate was 0.02% with no lease charge-offs. It is anticipated that higher yields on the lease portfolio will more than offset the expected lease charge-offs of between 0.75% and 1.50% of average leases outstanding.
9
Non-Performing Assets and Related Ratios
December 31, | ||||||||||||||||||||
(dollars in thousands) |
2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Non-accrual loans and leases |
$ | 704 | $ | 261 | $ | 1,353 | $ | 371 | $ | 209 | ||||||||||
Loans and leases 90 days or more past due |
119 | 129 | 22 | 62 | 45 | |||||||||||||||
Total non-performing loans and leases |
823 | 390 | 1,375 | 433 | 254 | |||||||||||||||
Other real estate owned (OREO) |
| 25 | 357 | | | |||||||||||||||
Total non-performing assets |
$ | 823 | $ | 415 | $ | 1,732 | $ | 433 | $ | 254 | ||||||||||
Allowance for loan and lease losses to non-performing assets |
986.9 | % | 1,783.6 | % | 399.9 | % | 1,540.4 | % | 2,407.1 | % | ||||||||||
Allowance for loan and lease losses to non-performing loans |
986.9 | % | 1,897.9 | % | 503.8 | % | 1,540.4 | % | 2,407.1 | % | ||||||||||
Non-performing loans to total loans and leases |
0.12 | % | 0.07 | % | 0.25 | % | 0.09 | % | 0.06 | % | ||||||||||
Allowance for loan losses to total loans and leases |
1.19 | % | 1.24 | % | 1.25 | % | 1.34 | % | 1.40 | % | ||||||||||
Non-performing assets to total assets |
0.10 | % | 0.06 | % | 0.25 | % | 0.07 | % | 0.04 | % | ||||||||||
Net loan charge-offs/average loans and leases |
.02 | % | .05 | % | .12 | % | .04 | % | (.04 | %) | ||||||||||
Period end portfolio loans and leases |
$ | 681,291 | $ | 595,165 | $ | 555,889 | $ | 498,726 | $ | 438,949 | ||||||||||
Average loans and leases (average for year) |
$ | 636,286 | $ | 582,386 | $ | 538,775 | $ | 478,397 | $ | 421,904 | ||||||||||
Allowance for loan and lease losses |
$ | 8,122 | $ | 7,402 | $ | 6,927 | $ | 6,670 | $ | 6,114 |
Summary of Changes in the Allowance for Loan and Lease Losses
(dollars in thousands) |
2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Balance, January 1 |
$ | 7,402 | $ | 6,927 | $ | 6,670 | $ | 6,114 | $ | 4,928 | ||||||||||
Charge-offs: |
||||||||||||||||||||
Consumer |
(31 | ) | (158 | ) | (94 | ) | (102 | ) | (68 | ) | ||||||||||
Commercial and industrial |
| | (167 | ) | (112 | ) | | |||||||||||||
Real estate |
(120 | ) | (156 | ) | (431 | ) | (13 | ) | | |||||||||||
Total charge-offs |
(151 | ) | (314 | ) | (692 | ) | (227 | ) | (68 | ) | ||||||||||
Recoveries: |
||||||||||||||||||||
Consumer |
34 | 11 | 47 | 32 | 24 | |||||||||||||||
Commercial and industrial |
3 | 12 | 2 | | 220 | |||||||||||||||
Real estate |
2 | 4 | | 1 | 10 | |||||||||||||||
Total Recoveries |
39 | 27 | 49 | 33 | 254 | |||||||||||||||
Net (charge-offs) / recoveries |
(112 | ) | (287 | ) | (643 | ) | (194 | ) | 186 | |||||||||||
Provision for loan and lease losses |
832 | 762 | 900 | 750 | 1,000 | |||||||||||||||
Balance, December 31 |
$ | 8,122 | $ | 7,402 | $ | 6,927 | $ | 6,670 | $ | 6,114 | ||||||||||
Allocation of Allowance for Loan and Lease Losses
The following table sets forth an allocation of the allowance for loan and lease losses by category. The specific allocations in any particular category 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 category.
December 31, | ||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||
(dollars in thousands) |
% Loans
to Total Loans |
% Loans
to Total Loans |
% Loans
to Total Loans |
% Loans
to Total Loans |
% Loans
to Total Loans |
|||||||||||||||||||||||||
Balance at end of period applicable to: |
||||||||||||||||||||||||||||||
Commercial and industrial |
$ | 2,161 | 25.7 | % | $ | 2,191 | 28.5 | % | $ | 3,575 | 33.1 | % | $ | 3,656 | 35.7 | % | $ | 2,940 | 36.4 | % | ||||||||||
Real estate construction |
950 | 11.0 | 569 | 7.6 | 741 | 6.6 | 558 | 7.2 | 494 | 5.9 | ||||||||||||||||||||
Real estate mortgage |
4,448 | 60.9 | 4,141 | 62.3 | 806 | 58.5 | 1,089 | 53.4 | 1,107 | 52.4 | ||||||||||||||||||||
Consumer |
77 | 1.4 | 143 | 1.6 | 1,174 | 1.8 | 906 | 3.7 | 907 | 5.3 | ||||||||||||||||||||
Leases |
140 | 1.0 | | | | | | | | | ||||||||||||||||||||
Unallocated |
346 | | 358 | | 631 | | 461 | | 666 | | ||||||||||||||||||||
Total |
$ | 8,122 | 100 | % | $ | 7,402 | 100.0 | % | $ | 6,927 | 100.0 | % | $ | 6,670 | 100.0 | % | $ | 6,114 | 100.0 | % | ||||||||||
10
N ON -I NTEREST I NCOME
2006 Compared to 2005
Non-interest income for the twelve months ended December 31, 2006, increased $56 thousand or 0.3% to $18.361 million when compared to the same period last year. Wealth Management services fee income increased $883 thousand or 7.7% to $12.422 million in 2006 from $11.539 million in 2005, while other non-interest income categories in the aggregate declined $827 thousand over the same time period, primarily due to lower residential mortgage related revenue.
2005 Compared to 2004
Non-interest income for 2005, excluding the $1.145 million gain on MSR sales in 2004, decreased $378 thousand or 2.0% to $18.305 million from $18.683 million in 2004. Non-interest income was negatively impacted by the slowdown in residential mortgage activity, as residential mortgage originations and sales declined 7.2% or $14.9 million and $24.7 million or 17.1%, respectively in 2005 compared to 2004. This decline in residential mortgage activity along with very competitive pricing resulted in a reduction in the gain on sale of loans of 44.5% or $1.298 million to $1.622 million in 2005 from $2.920 million in 2004. Non-interest income was also negatively impacted by a $234 thousand or 12.8% decrease in service charges on deposit accounts reflecting the impact of higher earnings credits on commercial checking accounts and the industrys trend toward free checking.
Partially offsetting this decrease in non-interest income was a 2005 increase of $1.236 million or 12.0% in fees for Wealth Management services compared to 2004. Wealth assets under management and administration increased $310 million or 16.0% to $2.248 billion at December 31, 2005, compared to $1.938 billion at December 31, 2004. The increase in assets under management and administration is partly a result of a business acquisition by a significant client in the third quarter of 2005.
N ON -I NTEREST E XPENSE
2006 Compared to 2005
Non-interest expense for the twelve months ended December 31, 2006, decreased $150 thousand to $31.423 million when compared to the same period last year, primarily due to reductions in incentive compensation, mortgage servicing right amortization and professional fees, partially offset by increased occupancy costs, employee benefit costs, leasing company startup costs and West Chester staffing additions.
2005 Compared to 2004
Non-interest expense for 2005, excluding $266 thousand of expenses related to the sale of the MSRs, increased $214 thousand or 0.7% to $31.573 million when compared to $31.359 million in 2004. The increase is a combination of many factors including increased medical benefit costs, staff merit raises, incentive compensation, and occupancy and furniture and fixture expenses related to the Exton, PA branch. Partially offsetting these increases were reduced levels of professional fees, lower amortization of mortgage servicing rights, and reduced residential mortgage staffing levels.
I NCOME T AXES
Income taxes for the year ended December 31, 2006 were $6.689 million compared to $5.928 million in 2005 and $4.752 million in 2004. The increase in income tax expense is substantially related to the increase in pre-tax income. The effective tax rate was 34.5% in 2006, 34.3% in 2005 and 33.7% in 2004.
B ALANCE S HEET A NALYSIS
Total assets increased $99.5 million or 13.7% from $727.2 million as of December 31, 2005 to $826.7 million as of December 31, 2006. Total portfolio loans and leases increased $86.1 million or 14.5% over the same time period from $595.2 million at December 31, 2005 to $681.3 million at December 31, 2006. Average assets increased $57.8 million or 8.5% to $740.7 million and average portfolio loans and leases increased $56.3 million or 9.8% to $631.9 million in 2006 compared to 2005. Portfolio loan and lease balances grew steadily during the year, as average quarterly loans and leases outstanding were $595.5 million, $617.6 million, $645.3 million and $669.0 million during the 1 st , 2 nd , 3 rd and 4 th quarters of 2006, respectively.
As a result of the increase in portfolio loans and leases, the funding needs for the Corporation increased substantially, resulting in less funds available to be sold and a decline in Federal Funds sold of $32.3 million. The increased funding needs were met with time deposits, wholesale deposits and borrowed funds.
Total deposits increased $78.2 million or 12.3% to $714.5 million at December 31, 2006, up from $636.3 million at December 31, 2005. A more accurate reflection of stable deposit balances is the fourth quarter average deposits of $649.8 million compared with the fourth quarter 2005 average deposits of $600.6 million, a growth of $49.2 million or 8.2%.
Average deposit trends during 2006 include a decrease in average savings, NOW and market rate accounts of $25.1 million or 8.6%, a large increase in average time deposits of $42.6 million or 32.6% and the use of wholesale deposits of $10.5 million, while the non-interest bearing demand balance increased slightly to $150.0 million from $148.5 million. The decrease in savings, NOW and market rate accounts experienced by the Corporation also reflects the competitive nature of the Philadelphia regional banking market place. The combination of rising interest rates, aggressive
11
marketing by our competitors, a more educated consumer and the Corporations reluctance to compete on rate alone contributed to this decline. Additionally, the Corporation anticipates that growth of core deposits will be one of its most difficult challenges for the foreseeable future.
The Corporation continues its aggressive business development efforts by building banking relationships with privately held business owners, non-profits, quality residential builders, and owners of commercial real estate. These relationships focus on loan, deposit and wealth management products.
Borrowed funds increased $15 million from December 31, 2005 to December 31, 2006. Average borrowings in 2005 and 2004 did not average more than $2.0 million. The growth in loans and leases during 2006 is responsible for the average increase in borrowed funds of $17.7 million from $1.7 million in 2005 to $19.4 million in 2006.
The Corporations average loan to deposit ratio increased from 95.6% and 97.7% in 2004 and 2005, respectively, to 101.7% in 2006. The Corporation has significant capacity to borrow from the FHLB as discussed later in this document under the section titled Liquidity. The Corporation continues to evaluate other wholesale funding mechanisms.
The Corporations shareholders equity was negatively impacted by $4.2 million due to the adoption of FAS 158 in the fourth
Investment Portfolio
A maturity breakout of the investment portfolio by investment type at December 31, 2006 is as follows:
(dollars in thousands) |
Maturing
During 2007 |
Maturing
From 2008 Through 2011 |
Maturing
From 2012 Through 2016 |
Maturing
After 2016 |
Total | ||||||||||||||
Obligations of the U.S. Government and agencies: |
|||||||||||||||||||
Book value |
$ | 6,469 | $ | 14,791 | $ | 9,509 | $ | | $ | 30,769 | |||||||||
Weighted average yield |
3.64 | % | 4.32 | % | 5.82 | % | | 4.64 | % | ||||||||||
State and political subdivisions: |
|||||||||||||||||||
Book value |
$ | | $ | 1,995 | $ | 3,019 | $ | | $ | 5,014 | |||||||||
Weighted average yield |
| 3.27 | % | 3.14 | % | | 3.19 | % | |||||||||||
Other investment securities: |
|||||||||||||||||||
Book value |
$ | 115 | $ | 600 | $ | | $ | | $ | 715 | |||||||||
Weighted average yield |
4.70 | % | 4.55 | % | | | 4.57 | % | |||||||||||
Subtotal book value |
$ | 6,584 | $ | 17,386 | $ | 12,528 | $ | | $ | 36,498 | |||||||||
Weighted average yield |
3.66 | % | 4.21 | % | 5.17 | % | | 4.44 | % | ||||||||||
Mortgage backed securities |
|||||||||||||||||||
Book value |
$ | | $ | | $ | | $ | | $ | 11,734 | |||||||||
Weighted average yield |
| | | | 5.33 | % | |||||||||||||
Total book value |
$ | 6,584 | $ | 17,386 | $ | 12,528 | $ | | $ | 48,232 | |||||||||
Weighted average yield |
3.66 | % | 4.21 | % | 5.17 | % | | 4.66 | % |
Loan Portfolio
A breakdown of the loan portfolio by major categories at December 31 for each of the last five years is as follows:
December 31, | |||||||||||||||
(dollars in thousands) |
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||
Consumer |
$ | 9,156 | $ | 9,437 | $ | 10,291 | $ | 18,580 | $ | 24,537 | |||||
Commercial & Industrial |
175,278 | 170,283 | 186,923 | 178,382 | 170,286 | ||||||||||
Commercial Mortgage |
198,407 | 162,621 | 137,141 | 119,811 | 103,972 | ||||||||||
Construction |
74,798 | 45,523 | 36,941 | 36,235 | 27,514 | ||||||||||
Residential Mortgage |
103,572 | 99,602 | 75,081 | 59,714 | 51,096 | ||||||||||
Home Equity Lines & Loans |
113,068 | 107,699 | 109,512 | 86,004 | 61,544 | ||||||||||
Leases |
7,012 | | | | | ||||||||||
Total Portfolio Loans |
681,291 | 595,165 | 555,889 | 498,726 | 438,949 | ||||||||||
Loans held for sale |
3,726 | 2,765 | 8,708 | 3,690 | 28,026 | ||||||||||
$ | 685,017 | $ | 597,930 | $ | 564,597 | $ | 502,416 | $ | 466,975 | ||||||
Loan Portfolio Maturity and Interest Rate Sensitivity
The loan maturity distribution and interest rate sensitivity table below excludes loans secured by one to four family residential properties and consumer loans as of December 31, 2006:
(dollars in thousands) |
Maturing
During 2007 |
Maturing
From 2008 Through 2011 |
Maturing
After 2011 |
Total | ||||||||
Loan Portfolio Maturity: |
||||||||||||
Commercial and industrial |
$ | 71,025 | $ | 51,605 | $ | 24,540 | $ | 147,170 | ||||
Real estate construction |
46,566 | 24,506 | 3,726 | 74,798 | ||||||||
Real estate other |
1,389 | 19,315 | 174,110 | 194,814 | ||||||||
Leases |
18 | 6,994 | | 7,012 | ||||||||
Total |
$ | 118,998 | $ | 102,420 | $ | 202,376 | $ | 423,794 | ||||
Interest sensitivity on the above loans: |
||||||||||||
Loans with predetermined rates |
$ | 23,493 | $ | 76,941 | $ | 72,769 | $ | 173,203 | ||||
Loans with adjustable or floating rates |
95,505 | 25,479 | 129,607 | 250,591 | ||||||||
Total |
$ | 118,998 | $ | 102,420 | $ | 202,376 | $ | 423,794 | ||||
12
D ISCUSSION OF S EGMENTS
The Corporation has three principal segments (Residential Mortgage, Wealth Management, and Banking) as defined by SFAS No. 131 Segment Reporting. These segments are discussed below. The Detail segment information appears in Note 24 in the accompanying Consolidated Financial Statements.
Residential Mortgage Segment Activity
All activity is for the year unless noted otherwise:
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Residential loans held in portfolio* |
$ | 103,752 | $ | 99,602 | $ | 75,081 | ||||||
Mortgage originations |
127,307 | 193,324 | 208,252 | |||||||||
Mortgage loans sold: |
||||||||||||
Servicing retained |
20,910 | 41,664 | 111,173 | |||||||||
Servicing released |
46,750 | 78,537 | 33,743 | |||||||||
Total mortgage loans sold |
$ | 67,660 | $ | 120,201 | $ | 144,916 | ||||||
Percentage of mortgage loans sold: |
||||||||||||
Servicing retained % |
30.9 | % | 34.7 | % | 76.7 | % | ||||||
Servicing released % |
69.1 | % | 65.3 | % | 23.3 | % | ||||||
Loans serviced for others* |
382,141 | 417,649 | 507,421 | |||||||||
Mortgage servicing rights* |
2,883 | 2,982 | 3,172 | |||||||||
Gain on sale of loans |
954 | 1,622 | 2,920 | |||||||||
Loans servicing & late fees |
1,126 | 1,303 | 1,632 | |||||||||
Gain on sale of MSRs |
| | 1,145 | |||||||||
Amortization of MSRs |
348 | 606 | 839 | |||||||||
Basis point gain on loans sold |
141 | 135 | 201 |
* | Period end balance |
The Corporations mortgage banking segment continued to shrink in 2006 as mortgage originations of $127.3 million in 2006 were $66.0 million lower than originations in 2005 and $80.9 million lower than originations in 2004. The decrease in mortgage originations was partially attributable to the substantial decline in loan refinancing activity which correlated with the nationwide end of the refinance boom and the increase in mortgage loan interest rates.
Management expects mortgage originations to continue to decline in 2007 when compared to 2006 due to uncertainty over the direction of real estate values and interest rates.
Loans serviced for others have decreased from $507.4 million in 2004 to $417.6 million in 2005, with a further reduction to $382.1 million in 2006. The decline in loans serviced for others is partially due to a 2005 decision by management to sell a higher percentage of loans with servicing released and to hold fixed rate mortgages in portfolio during 2006. The increase in sale of loans servicing released provided the Corporation the ability to price mortgages more competitively and increase the gain on sale of loans. Competitive pricing pressures during 2006 combined with a smaller gain on sale on loans sold servicing retained resulted in reduced gains on the sale of servicing retained loans. Overall, the gain on sale of loans sold resulted in a gain per loan sold of 141 basis points, 135 basis points, and 201 basis points in 2006, 2005 and 2004, respectively.
Wealth Segment Activity
The Wealth Management segment reported a 15.8% increase in pre-tax segment profit (PTSP) for 2006 compared to 2005. This performance is attributed to an increase in Wealth revenues of 7.6% from 2005, while expenses increased only 1.0% over the same time period. The growth in the Wealth Divisions PTSP in 2005 compared to 2004 was an increase of 34.3%. This increase is primarily due to a 12.0% increase in Wealth Management revenues related to estate fees and a fee increase in the second quarter of 2005.
The increase in Wealth Management revenues from 2005 to 2006 is primarily from the investment management, retirement services and estates administration components. Increased investment management fees are the result of conversion of custody accounts to investment management accounts.
Wealth Management assets under management and administration have grown to $2.515 billion as of December 31, 2006 from $2.248 billion at December 31, 2005 and $1.938 billion at December 31, 2004 or 11.9% and 29.8%, respectively. This growth is primarily a combination of business acquisitions by a significant client and an increase in the market value of existing accounts due to asset appreciation.
Banking Segment Activity
Banking segment data as presented in Note 23 of the Notes to Consolidated Financial Statements indicates a PTSP of $13.0 million in 2006, $11.4 million in 2005 and $7.9 million in 2004. See Components of Net Income earlier in this documentation for a discussion of the Banking segment.
C APITAL
Consolidated shareholders equity of the Corporation was $82.4 million or 9.97% of total assets as of December 31, 2006 compared to $77.5 million or 10.66% of total assets as of December 31, 2005. The decline of 69 basis points is primarily the result of asset growth and the adoption of FAS 158 as discussed in Note 11 in the accompanying Consolidated Financial Statements. The Corporations and Banks regulatory capital ratios and the minimum capital requirements to be considered Well Capitalized by banking regulators are displayed in Note 20 in the accompanying Consolidated Financial Statements.
Both the Corporation and the Bank exceed the required capital levels to be considered Well Capitalized by their respective regulators at the end of each period presented.
Neither the Corporation nor the Bank are under any agreement with regulatory authorities, nor is Management aware of any current recommendations by the regulatory authorities, which, if such recommendations were implemented, would have a material effect on liquidity, capital resources or operations of the Corporation.
13
L IQUIDITY
The Corporation manages its liquidity position on a daily basis as part of the daily settlement function and monthly as part of the asset liability management process. The Corporations primary liquidity is maintained by managing its deposits along with the utilization of purchased federal funds, borrowings from the FHLB and utilization of other wholesale funding sources. Secondary sources of liquidity include the sale of securities and certain loans in the secondary market. Borrowing availability with the FHLB was approximately $248 million, excluding $15 million of advances outstanding, as of December 31, 2006. Overnight Fed Funds lines consist of lines from six banks totaling $68 million. Quarterly, ALCO reviews the Corporations liquidity needs and reports its findings to the Risk Management Committee of the Board of Directors.
O FF B ALANCE S HEET R ISK
The following chart presents the off-balance sheet commitments of the Bank as of December 31, 2006, 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 |
$ | 314,302 | $ | 187,298 | $ | 59,024 | $ | 43,404 | $ | 24,576 | |||||
Standby letters of credit |
11,693 | 8,350 | 3,343 | | | ||||||||||
Total |
$ | 325,995 | $ | 195,648 | $ | 62,367 | $ | 43,404 | $ | 24,576 | |||||
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.
Estimated fair values of the Corporations 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
C ONTRACTUAL C ASH O BLIGATIONS OF THE C ORPORATION AS OF D ECEMBER 31, 2006
(dollars in thousands) |
Total |
Within
1 Year |
2 - 3
Years |
4 - 5
Years |
After
5 Years |
||||||||||
Deposits without a stated maturity |
$ | 494,067 | $ | 494,067 | $ | | $ | | $ | | |||||
Wholesale and retail certificates of deposit |
220,422 | 212,346 | 7,406 | 517 | 153 | ||||||||||
Operating leases |
24,476 | 885 | 1,864 | 1,840 | 19,887 | ||||||||||
Purchase obligations |
3,276 | 1,803 | 1,005 | 468 | | ||||||||||
Non-discretionary pension contributions |
132 | 132 | | | | ||||||||||
Total |
$ | 742,373 | $ | 709,233 | $ | 10,275 | $ | 2,825 | $ | 20,040 | |||||
O THER I NFORMATION
Branch Office Expansion
During the first quarter of 2004 and the second quarter of 2005, the Corporation opened full service branch bank offices in Newtown Square and Exton, PA, respectively. At December 31, 2006, the Newtown Square and Exton branches had deposits of approximately $29.1 million and $14.3 million, respectively. During the third quarter of 2005, the Corporation entered into a ground lease for a location in Ardmore, PA, and began construction of a branch office to relocate the Wynnewood, PA office. The Ardmore Branch office opened January 16, 2007. The Corporation anticipates measured expansion of its branch footprint over the next few years including plans to enter the West Chester, PA market in 2008.
Regulatory Matters and Pending Legislation
Management is not aware of any other current specific recommendations by regulatory authorities or proposed legislation which, if they were implemented, would have a material adverse effect upon the liquidity, capital resources, or results of operations, although the general cost of compliance with numerous and multiple federal and state laws and regulations does have, and in the future may have, an impact on the Corporations results of operations.
In February, 2006, Congress passed the Federal Deposit Insurance Reform Act of 2005 (FDIRA-2005). This legislation will merge the Bank Insurance Fund and the Savings Association Insurance Fund into one fund, increase insurance coverage for retirement accounts to $250,000, adjust the maximum deposit insurance for inflation after March 31, 2010 and give the FDIC greater flexibility in setting insurance assessments. As part of the FDIRA-2005, the Corporations primary operating subsidiary, the Bank, has been granted a one-time credit of approximately $409 thousand for utilization
14
against future FDIC insurance premiums. The FDIC announced that 2007 assessments will range from 5 to 7 basis points for well capitalized institutions with composite regulatory examination ratings of one or two. The Corporation anticipates that the $409 thousand credit will offset all of the 2007 premium assessment and a significant portion of the 2008 assessment.
Effects of Inflation
Inflation has some impact on the Corporations operating costs. Unlike many industrial companies, however, substantially all of the Corporations assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporations 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 Corporations operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot be predicted.
Q UANTITATIVE A ND Q UALITATIVE D ISCLOSURES A BOUT M ARKET R ISKS
The quantitative and qualitative disclosures about market risks are included in the Management Discussion and Analysis, in various sections beginning with Net Interest Income through Contractual Cash Obligations of the Corporation.
15
Managements Report on Internal Control over Financial Reporting
Corporation Management is responsible for both establishing and maintaining adequate internal controls over financial reporting. As of December 31, 2006, Management conducted an assessment of the effectiveness of the Corporations internal controls over financial reporting and concluded that such internal controls are effective and found no material weaknesses. The assessment was accomplished using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Management has concluded that, as of December 31, 2006, the Corporations internal control over financial reporting is effective, based on the COSO criteria.
Managements assessment of the effectiveness of the Corporations internal control over financial reporting as of December 31, 2006 has been audited by KPMG LLP, (KPMG) the Corporations independent registered public accounting firm, having responsibility for auditing the Corporations financial statements. KPMG has expressed unqualified opinions on Managements assessment and on the effectiveness of the Corporations internal control over financial reporting as of December 31, 2006 and has issued an attestation report on the Corporations management assessment of the Corporations internal controls over financial reporting as of December 31, 2006.
16
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders Bryn Mawr Bank Corporation:
We have audited the accompanying consolidated balance sheets of Bryn Mawr Bank Corporation and subsidiaries (the Corporation) as of December 31, 2006 and 2005, and the related consolidated statements of income, cash flows, changes in shareholders equity, and comprehensive income, for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Corporations management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Corporations internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2007 expressed an unqualified opinion on managements assessment of, and the effective operation of, internal control over financial reporting.
As discussed in note 1 to the consolidated financial statements, the Corporation adopted Statement of Financial Accounting Standards No. 123R, Share Based Payment, effective January 1, 2006, Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, in 2006.
Philadelphia, Pennsylvania
March 9, 2007
17
Consolidated Balance Sheets
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands,
except per share data) |
||||||||
Assets |
||||||||
Cash and due from banks |
$ | 61,473 | $ | 33,896 | ||||
Interest bearing deposits with banks |
532 | 405 | ||||||
Federal funds sold |
| 32,341 | ||||||
Total cash and cash equivalents |
$ | 62,005 | $ | 66,642 | ||||
Investment securities available for sale, at fair market (amortized cost of $48,632 and $34,014 as of December 31, 2006 and 2005, respectively) |
48,232 | 33,397 | ||||||
Loans held for sale |
3,726 | 2,765 | ||||||
Portfolio loans and leases |
681,291 | 595,165 | ||||||
Less: Allowance for loan and lease losses |
(8,122 | ) | (7,402 | ) | ||||
Net portfolio loans and leases |
673,169 | 587,763 | ||||||
Premises and equipment, net |
16,571 | 14,622 | ||||||
Accrued interest receivable |
4,232 | 3,265 | ||||||
Deferred income taxes |
2,946 | 709 | ||||||
Mortgage servicing rights |
2,883 | 2,982 | ||||||
Other assets |
12,896 | 15,081 | ||||||
Total assets |
$ | 826,660 | $ | 727,226 | ||||
Liabilities |
||||||||
Deposits: |
||||||||
Non-interest-bearing demand |
$ | 198,546 | $ | 168,042 | ||||
Savings, NOW and market rate accounts |
295,521 | 312,896 | ||||||
Time deposits |
200,446 | 150,322 | ||||||
Wholesale deposits |
19,976 | 5,000 | ||||||
Total deposits |
714,489 | 636,260 | ||||||
Borrowed funds |
15,000 | | ||||||
Accrued interest payable |
4,346 | 2,143 | ||||||
Other liabilities |
10,442 | 11,310 | ||||||
Total liabilities |
744,277 | 649,713 | ||||||
Shareholders equity |
||||||||
Common stock, par value $1; authorized 25,000,000 shares; issued 11,373,182 and 11,221,899 shares as of December 31, 2006 and 2005, respectively and outstanding of 8,562,209 and 8,556,255 shares as of December 31, 2006 and 2005, respectively |
11,373 | 11,222 | ||||||
Paid-in capital in excess of par value |
10,598 | 7,888 | ||||||
Accumulated other comprehensive loss, net of tax benefit |
(4,450 | ) | (643 | ) | ||||
Retained earnings |
92,106 | 82,930 | ||||||
Less: Common stock in treasury at cost 2,810,973, and 2,665,644 shares as of December 31, 2006 and 2005, respectively |
(27,244 | ) | (23,884 | ) | ||||
Total shareholders equity |
82,383 | 77,513 | ||||||
Total liabilities and shareholders equity |
$ | 826,660 | $ | 727,226 | ||||
Book value per share |
$ | 9.62 | $ | 9.06 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
18
Consolidated Statements of Income
For the Years Ended December 31, | |||||||||
2006 | 2005 | 2004 | |||||||
(dollars in thousands, except per share data) | |||||||||
Interest income: |
|||||||||
Interest and fees on loans and leases |
$ | 43,775 | $ | 36,499 | $ | 30,123 | |||
Interest on federal funds sold |
146 | 210 | 191 | ||||||
Interest on deposits with other banks |
30 | 76 | 48 | ||||||
Interest on investment securities |
1,955 | 1,123 | 985 | ||||||
Total interest income |
45,906 | 37,908 | 31,347 | ||||||
Interest expense: |
|||||||||
Interest expense on savings, NOW and market rate accounts |
3,850 | 2,744 | 1,999 | ||||||
Interest expense on wholesale and time deposits |
7,715 | 3,799 | 2,544 | ||||||
Interest expense on other borrowings |
1,042 | 57 | 10 | ||||||
Total interest expense |
12,607 | 6,600 | 4,553 | ||||||
Net interest income |
33,299 | 31,308 | 26,794 | ||||||
Provision for loan and lease losses |
832 | 762 | 900 | ||||||
Net interest income after provision for loan and lease losses |
32,467 | 30,546 | 25,894 | ||||||
Non-interest income: |
|||||||||
Fees for Wealth management services |
12,422 | 11,539 | 10,303 | ||||||
Service charges on deposit accounts |
1,540 | 1,593 | 1,827 | ||||||
Loan servicing and other fees |
1,126 | 1,303 | 1,632 | ||||||
Net gain on sale of loans |
954 | 1,622 | 2,920 | ||||||
Net gain on sale of mortgage servicing rights |
| | 1,145 | ||||||
Other operating income |
2,319 | 2,248 | 2,001 | ||||||
Total non-interest income |
18,361 | 18,305 | 19,828 | ||||||
Non-interest expenses: |
|||||||||
Salaries and wages |
15,754 | 15,862 | 15,013 | ||||||
Employee benefits |
4,287 | 4,075 | 4,297 | ||||||
Occupancy and bank premises |
2,534 | 2,272 | 2,161 | ||||||
Furniture, fixtures, and equipment |
1,925 | 1,941 | 1,785 | ||||||
Advertising |
898 | 960 | 879 | ||||||
Professional fees |
1,016 | 1,292 | 1,808 | ||||||
Amortization of mortgage service rights |
348 | 606 | 839 | ||||||
Other operating expense |
4,661 | 4,565 | 4,843 | ||||||
Total non-interest expenses |
31,423 | 31,573 | 31,625 | ||||||
Income before income taxes |
19,405 | 17,278 | 14,097 | ||||||
Applicable income taxes |
6,689 | 5,928 | 4,752 | ||||||
Net income |
$ | 12,716 | $ | 11,350 | $ | 9,345 | |||
Basic earnings per common share |
$ | 1.48 | $ | 1.33 | $ | 1.09 | |||
Diluted earnings per common share |
$ | 1.46 | $ | 1.31 | $ | 1.07 | |||
Dividends per share |
$ | 0.46 | $ | 0.42 | $ | 0.40 | |||
Weighted-average basic shares outstanding |
8,578,050 | 8,563,027 | 8,610,171 | ||||||
Dilutive potential common shares |
113,579 | 101,200 | 110,854 | ||||||
Weighted-average dilutive shares |
8,691,629 | 8,664,227 | 8,721,025 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
19
Consolidated Statements of Cash Flows
For the Years Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Operating activities: |
||||||||||||
Net Income |
$ | 12,716 | $ | 11,350 | $ | 9,345 | ||||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||||||
Provision for loan and lease losses |
832 | 762 | 900 | |||||||||
Depreciation and amortization |
1,455 | 1,516 | 1,375 | |||||||||
Loans originated for resale |
(68,209 | ) | (137,485 | ) | (144,916 | ) | ||||||
Proceeds from sale of loans |
68,202 | 132,653 | 148,981 | |||||||||
Net gain on sale of loans |
(954 | ) | (1,622 | ) | (2,920 | ) | ||||||
Net gain on sale of mortgage servicing rights |
| | (1,145 | ) | ||||||||
Provision for deferred income taxes |
(496 | ) | (521 | ) | 38 | |||||||
Change in income taxes payable/receivable |
1,228 | (354 | ) | (511 | ) | |||||||
Change in accrued interest receivable |
(967 | ) | (686 | ) | (305 | ) | ||||||
Change in accrued interest payable |
2,203 | (735 | ) | 550 | ||||||||
Change in mortgage servicing rights |
99 | 190 | 1,219 | |||||||||
Other, net. |
(4,802 | ) | 4,431 | (3,321 | ) | |||||||
Net cash provided by operating activities |
11,307 | 9,499 | (9,290 | ) | ||||||||
Investing activities: |
||||||||||||
Purchases of investment securities |
(28,229 | ) | (9,004 | ) | (17,568 | ) | ||||||
Proceeds from maturities of investment securities and mortgage-backed securities pay downs |
7,181 | 3,500 | | |||||||||
Proceeds from sales of investment securities available for sale |
| 1,586 | 204 | |||||||||
Proceeds from calls of investment securities |
5,940 | 4,000 | 13,147 | |||||||||
Net repayments of notes receivable |
954 | 387 | 435 | |||||||||
Net loan originations |
(87,192 | ) | (27,553 | ) | (63,258 | ) | ||||||
Sale of other real estate owned (OREO ) |
25 | 377 | | |||||||||
OREO Charge-off |
| (20 | ) | | ||||||||
Purchases of premises and equipment. |
(3,303 | ) | (1,859 | ) | (1,716 | ) | ||||||
Net cash used by investing activities |
(104,624 | ) | (28,586 | ) | (68,756 | ) | ||||||
Financing activities: |
||||||||||||
Change in demand, NOW, savings and market rate deposit accounts |
13,130 | (9,558 | ) | 60,547 | ||||||||
Change in time deposits |
50,124 | 39,852 | 13,279 | |||||||||
Change in wholesale deposits |
14,976 | 5,000 | | |||||||||
Change in borrowed funds |
15,000 | | | |||||||||
Dividends paid |
(3,948 | ) | (3,599 | ) | (3,446 | ) | ||||||
Proceeds from exercise of stock options |
2,511 | 643 | 500 | |||||||||
Tax benefit from exercise of stock options |
293 | 139 | 107 | |||||||||
Purchase of treasury stock |
(3,406 | ) | (1,990 | ) | (2,574 | ) | ||||||
Net cash provided by financing activities |
88,680 | 30,487 | 68,413 | |||||||||
Change in cash and cash equivalents |
(4,637 | ) | 11,400 | 8,947 | ||||||||
Cash and cash equivalents at beginning of year |
66,642 | 55,242 | 46,295 | |||||||||
Cash and cash equivalents at end of year |
$ | 62,005 | $ | 66,642 | $ | 55,242 | ||||||
Supplemental cash flow information: |
||||||||||||
Cash paid during the year for: |
||||||||||||
Income taxes |
$ | 7,289 | $ | 4,646 | $ | 5,476 | ||||||
Interest. |
10,404 | 7,335 | 4,003 |
The accompanying notes are an integral part of the consolidated financial statements.
20
Consolidated Statements of Changes in Shareholders Equity
For the Years Ended December 31, 2006, 2005 and 2004 | |||||||||||||||||||||||||||
Shares of
Common Stock Issued |
Common
Stock |
Paid-in
Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Treasury
Stock |
Total
Shareholders Equity |
|||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||
Balance - December 31, 2003 |
11,135,232 | $ | 11,135 | $ | 6,487 | $ | 69,280 | $ | (126 | ) | $ | (19,394 | ) | $ | 67,382 | ||||||||||||
Net income |
| | | 9,345 | | | 9,345 | ||||||||||||||||||||
Dividends declared - $0.40 per share |
| | | (3,446 | ) | | | (3446 | ) | ||||||||||||||||||
Other comprehensive loss, net of tax benefit of $88 |
| | | | (162 | ) | | (162 | ) | ||||||||||||||||||
Tax benefit from gains on stock option exercise |
| | 107 | | | | 107 | ||||||||||||||||||||
Purchase of treasury stock |
| | | | | (2,574 | ) | (2,574 | ) | ||||||||||||||||||
Retirement of treasury stock |
(4,234 | ) | (4 | ) | (38 | ) | | | 31 | (11 | ) | ||||||||||||||||
Common stock issued |
41,584 | 41 | 556 | | | | 597 | ||||||||||||||||||||
Balance - December 31, 2004 |
11,172,582 | $ | 11,172 | $ | 7,112 | $ | 75,179 | $ | (288 | ) | $ | (21,937 | ) | $ | 71,238 | ||||||||||||
Net income |
| | | 11,350 | | | 11,350 | ||||||||||||||||||||
Dividends declared - $0.42 per share |
| | | (3,599 | ) | | | (3,599 | ) | ||||||||||||||||||
Other comprehensive loss, net of tax benefit of $191 |
| | | | (355 | ) | | (355 | ) | ||||||||||||||||||
Tax benefit from gains on stock option exercise |
| | 139 | | | | 139 | ||||||||||||||||||||
Purchase of treasury stock |
| | | | | (1,990 | ) | (1,990 | ) | ||||||||||||||||||
Retirement of treasury stock |
(4,480 | ) | (4 | ) | (39 | ) | | | 43 | | |||||||||||||||||
Common stock issued |
53,797 | 54 | 676 | | | | 730 | ||||||||||||||||||||
Balance - December 31, 2005 |
11,221,899 | $ | 11,222 | $ | 7,888 | $ | 82,930 | $ | (643 | ) | $ | (23,884 | ) | $ | 77,513 | ||||||||||||
Cumulative effect adjustment of prior year misstatements |
| | | 408 | | | 408 | ||||||||||||||||||||
Net Income |
| | | 12,716 | | | 12,716 | ||||||||||||||||||||
Dividends declared - $0.46 per share |
| | | (3,948 | ) | | (3,948 | ) | |||||||||||||||||||
Other comprehensive income, net of tax expense of $227 |
| | | | 421 | | 421 | ||||||||||||||||||||
Tax benefit from gains on stock option exercise |
| | 293 | | | | 293 | ||||||||||||||||||||
Purchase of treasury stock |
| | | | | (3,406 | ) | (3,406 | ) | ||||||||||||||||||
Retirement of treasury stock |
(4,671 | ) | (5 | ) | (41 | ) | | | 46 | | |||||||||||||||||
Common stock issued |
155,954 | 156 | 2,458 | | | | 2,614 | ||||||||||||||||||||
Adjustment to initially apply FAS 158, net of tax benefit |
| | | | (4,228 | ) | | (4,228 | ) | ||||||||||||||||||
Balance - December 31, 2006 |
11,373,182 | $ | 11,373 | $ | 10,598 | $ | 92,106 | $ | (4,450 | ) | $ | (27,244 | ) | $ | 82,383 | ||||||||||||
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, | |||||||||||
2006 | 2005 | 2004 | |||||||||
(dollars in thousands) | |||||||||||
Net income |
$ | 12,716 | $ | 11,350 | $ | 9,345 | |||||
Other comprehensive income: |
|||||||||||
Unrealized investment gains (losses), net of tax expense (benefit) of $76, ($141) and ($70), respectively |
140 | (263 | ) | (129 | ) | ||||||
Change in unfunded pension liability, net of tax expense (benefit) of $151, ($50) and ($18), respectively |
281 | (92 | ) | (33 | ) | ||||||
Comprehensive income |
$ | 13,137 | $ | 10,995 | $ | 9,183 | |||||
The accompanying notes are an integral part of the consolidated financial statements.
21
Notes to Consolidated Financial Statements
1. S UMMARY OF S IGNIFICANT A CCOUNTING P OLICIES
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 (the Corporation) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, PA, a western suburb of Philadelphia, PA. The Corporation and its subsidiaries provide wealth management, community banking, residential mortgage lending, insurance and business banking services to its customers through eight full service branches and seven retirement community offices throughout Montgomery, Delaware and Chester counties. The Corporation trades on the NASDAQ Global Market (NASD) under the symbol BMTC.
The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many regulatory agencies including the Securities and Exchange Commission (SEC), NASD, Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Pennsylvania Department of Banking.
Basis of Presentation
The accounting policies of the Corporation conform with accounting principles generally accepted in the United States of America (GAAP) and predominate practice with the banking industry. Statements of the Financial Accounting Standards Board are noted in these statements by the abbreviation FAS.
The Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries. The Corporations consolidated financial condition and results of operations consist almost entirely of the Banks financial condition and results of operations. All material inter-company transactions and balances have been eliminated.
In preparing the 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 date of the balance sheets, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, federal funds sold, and interest-bearing deposits with other banks with original maturities of three months or less. Cash balances required to meet regulatory reserve requirements of the Federal Reserve Board amounted to $2.143 million and $1.175 million at December 31, 2006 and 2005, respectively.
Investment Securities
Investment securities which are held for indefinite periods of time, which management intends to use as part of its asset/liability strategy, or which may be sold in response to changes in 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 amortization of premiums and accretion of discounts, using the specific identification method.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Portfolio Loans and Leases
The Corporation grants construction, commercial, residential mortgage and consumer loans to customers primarily in Southeastern Pennsylvania and small ticket equipment leasing to customers nationwide. Although the Corporation has a diversified loan and lease (loans) portfolio, its debtors ability to honor their contracts is substantially dependent upon the real estate and general economic conditions of the region.
Loans that the Corporation has the intent 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 of the related loan yield using the interest method.
22
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 non-accrual 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 non-accrual status or charged-off is reversed against interest income. The interest received on these loans is applied to reduce the carrying value of the loan or, if principal is considered fully collectible, recognized as interest income until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (allowance) is established through a provision for loan and lease losses (provision) charged as an expense. Loans and leases (loans) are charged against the allowance when Management believes that the collectibility of principal is unlikely. The allowance is maintained at a level that Management believes is sufficient to absorb estimated probable credit losses.
Managements determination of the adequacy of the allowance is based on periodic evaluations of the loan 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 including specific terms and conditions of loans, 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 borrowers perceived financial and management strengths, the amounts and timing of the present value of future cash flows, and access to additional funds. 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 portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from Management estimates, an additional provision for loan losses may be required that might adversely affect the Corporations results of operations in future periods. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance. Such agencies may require the Corporation to recognize additions to the allowance based on their judgment of information available to them at the time of their examination.
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by Management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans 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 borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Other Real Estate Owned
Other real estate owned (OREO) consists of assets that the Corporation has acquired through foreclosure, by accepting a deed in lieu of foreclosure, or by taking possession of assets that were used as loan collateral. The Corporation reports OREO as a component of Other Assets on the balance sheet at the lower of cost or estimated fair value less cost to sell, adjusted periodically based on current appraisals.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation and 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.
Pension and Postretirement Benefit Plans
The Corporation has two defined benefit pension plans and one postretirement benefit plan as discussed in Note 11 Pension and Postretirement Benefit Plans. The Corporation follows the disclosure provisions of FAS No. 132R Employers Disclosure About Pensions and Other Postretirement Benefits (FAS 132R). Net pension expense 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. The Corporation accrues pension costs as incurred.
The Corporation adopted FAS No. 158 Employers Accounting for Defined Benefit Plans and Other Post Retirement Plans (FAS 158) on December 31, 2006. As a result of this adoption, the Corporation recorded an additional pension liability resulting in a reduction of accumulated other comprehensive income in 2006.
23
Accounting for Stock-Based Compensation
The Corporation adopted FAS No. 123R Share Based Payments Amendment of FASB No. 123 and APB No. 25 (FAS 123R) effective January 1, 2006. FAS 123R establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an expense over the vesting period. The Corporation previously applied Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and provided the required pro forma disclosures of FAS No. 123, Accounting for Stock-Based Compensation (FAS 123).
Generally, the approach in FAS 123R to stock-based payment accounting is similar to FAS 123. However, FAS 123R requires all share-based payments, including grants of stock options, be recognized as compensation cost in the statement of income at their fair value. The fair value of stock option grants is determined using the Black-Scholes pricing model. The assumptions necessary for the calculation of the fair value are expected life of options, annual volatility of stock price, risk free interest rate and annual dividend yield. Pro forma disclosure for periods beginning after December 15, 2005 is not an alternative under FAS 123R.
The Corporation elected to adopt FAS 123R using the modified prospective application method in which compensation cost is recognized beginning with the effective date (a) based upon the requirements of FAS 123R for all share-based payments granted after the effective date, and (b) based on the requirements of FAS 123 for all awards granted prior to the effective date of FAS 123R that remain unvested on the effective date.
In June 2005, the Corporation accelerated the vesting of 83,916 out-of-the-money options, issued to employees, executive management and directors, which resulted in a proforma after-tax expense of $280 thousand included in the stock based compensation cost in the table below. The purpose of this transaction was to avoid the expense treatment of FAS 123R in 2006 and 2007.
Stock-based compensation expense for 2006 and proforma expense for 2005 and 2004 are shown in the table below:
For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | |||||||||||||||||||||||||||||||||
(dollars in thousands) |
Using Previous Accounting |
FAS 123R Effects |
As Reported |
As Reported |
FAS 123 Effects |
Proforma Accounting |
As
Reported |
FAS 123 Effects |
Proforma Accounting |
||||||||||||||||||||||||||
Income before taxes |
$ | 19,464 | $ | (59 | ) | $ | 19,405 | $ | 17,278 | $ | (2,135 | ) | $ | 15,413 | $ | 14,097 | $ | (144 | ) | $ | 13,953 | ||||||||||||||
Income taxes |
(6,710 | ) | 21 | (6,689 | ) | (5,928 | ) | 747 | 5,181 | (4,752 | ) | 50 | (4,702 | ) | |||||||||||||||||||||
Net income |
12,754 | (38 | ) | 12,716 | 11,350 | (1,388 | ) | 9,962 | 9,345 | (94 | ) | 9,251 | |||||||||||||||||||||||
Basic earnings per share |
1.48 | 0.00 | 1.48 | 1.33 | (.16 | ) | 1.17 | 1.09 | (0.02 | ) | 1.07 | ||||||||||||||||||||||||
Diluted earnings per share |
1.47 | (0.01 | ) | 1.46 | 1.31 | (.16 | ) | 1.15 | 1.07 | (0.01 | ) | 1.06 | |||||||||||||||||||||||
See Note 14, Earnings Per Share, and Note 13, Stock Option Plan, in these Consolidated Financial Statements for additional information regarding equity based compensation and earnings per share, respectively.
Earnings Per Common Share
The Corporation follows the provisions of FAS No. 128 Earnings Per Share (FAS 128). 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 this period. Diluted earnings per common share takes into account the potential dilution that could occur if stock options were exercised and converted into common stock. Proceeds assumed to have been received on such exercise are assumed to be used to purchase shares of the Corporations 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. 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.
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 financial statement 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.
Revenue Recognition
With the exception of non-accrual loans and leases, the Corporation recognizes all sources of income on the accrual basis.
24
Mortgage Servicing
The Corporation performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for these services.
Mortgage servicing rights (MSRs) are recognized as separate assets when rights are retained through the sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.
Servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights 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 will not be reversed.
Statement of Cash Flows
The Corporations statement of cash flows details operating, investing and financing activities during the reported periods.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
New Accounting Pronouncements
FAS 155
In February 2006, the FASB issued FAS No. 155 Accounting for Certain Hybrid Financial Instruments (FAS 155). Among other things, this Statement permits fair value remeasurement for certain hybrid financial instruments and requires that entities evaluate whether beneficial interests contain embedded derivatives or are derivatives in their entirety.
This Statement is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. The Corporation did not early adopt FAS 155. The Corporation has not yet determined whether FAS 155 will have a material impact on its consolidated financial statements in the future.
FAS 156
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets (FAS 156). FAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset. FAS 156 also requires fair value measurement of a servicing asset or liability upon initial recognition and permits different methods to subsequently measure each class of separately recognized servicing assets and servicing liabilities. This Statement additionally permits under certain circumstances a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under FAS 115.
This Statement becomes effective at the beginning of the first fiscal year that begins after September 15, 2006. The Corporation did not early adopt SFAS 156. The Corporation has determined that FAS 156 will not have a material impact on its consolidated financial statements upon adoption.
FIN 48
In June 2006, the FASB issued Financial Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109. FIN 48 provides guidance on financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Corporation is not required to adopt FIN 48 until fiscal year 2007. The Corporation does not expect that the adoption of FIN 48 will have a material impact on its financial condition or operations.
FAS 157
In September 2006, the FASB issued FAS No. 157 Fair Value Measurements (FAS 157). FAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The Statement applies only to fair-value measurements that are already required or permitted by other accounting standards.
FAS 157 is effective for fair-value measures already required or permitted by other standards for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Corporation did not early adopt FAS 157 and has not yet determined whether this Statement will have a material impact on its consolidated financial statements upon adoption.
FAS 158
FAS 158 requires employers to recognize on their balance sheets the funded status of pension and other postretirement benefit plans as of December 31, 2006. FAS 158 also requires fiscal-year-end measurements of plan assets and benefit obligations, eliminating the use of earlier measurement dates currently permissible. The new measurement date requirement is effective for fiscal years ending after December 15, 2008. The Corporation adopted FAS 158 effective on December 31, 2006. As a result of the adoption, the Corporation recorded an additional pension liability resulting in the reduction of accumulated other comprehensive income as discussed in Note 11 Pension and Post Retirement Benefit Plans.
FAS 159
In February 2007 the FASB issued FAS No. 159 The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115 (FAS 159).
25
FAS 159 permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings without having to apply complex hedge accounting provisions.
FAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is available subject to certain conditions. The Corporation did not early adopt FAS 159, and has not yet determined whether this statement will have a material impact on its consolidated financial statements upon adoption.
SAB 108
In September, 2006, the SEC published Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements When Qualifying Misstatements in Current Year Financial Statements (SAB 108). The SEC staff suggests that registrants electing not to restate prior periods should reflect the effects of applying the guidance in this interpretation in the annual financial statements covering the first fiscal year ending after November 15, 2006. The Corporation adopted SAB 108 in the fourth quarter of 2006.
SAB 108 requires the quantification of misstatements using both the balance sheet and income statement approach, and to evaluate whether either approach results in quantifying an error that is material in light of relevant factors. The guidance in SAB 99 Materiality is still used to evaluate the materiality of misstatements.
The Corporation determined that two prior misstatements were material under the guidance of SAB 108 and were recorded in the 2006 consolidated financial statements. The effect on beginning retained earnings (January 1, 2006) was as follows:
(in thousands) |
||||
Wealth Management fees |
$ | 532 | ||
Accrued expenses |
(124 | ) | ||
$ | 408 | |||
Additional explanations as follows:
Wealth Management Fees
Certain Wealth Management fees are charged monthly (or quarterly) based on the accounts ending market value at the last day of the previous billing period. These revenues are recorded in the month billed not the month earned. Accordingly, a cumulative error existed in our previously issued financial statements. The entry to record the related accrued revenue was $819 thousand (increase in Wealth fees receivable), an increase in retained earnings of $532 thousand and a deferred tax liability of $287 thousand. The impact of this accrual on 2006 Wealth Management fee revenue was an increase of $36 thousand.
Accrued Expenses
The Corporation has historically been on a cash basis for certain recurring monthly expenses such as telephone, electricity, water and other similar expenses. The entry to record the related accrual of expenses was $188 thousand (addition to accrued expenses), a decrease in retained earnings of $124 thousand and a deferred tax asset of $64 thousand. The impact of the accrual on 2006 other non-interest expenses was an increase of $16 thousand.
2. I NVESTMENT S ECURITIES
The amortized cost and estimated fair value of investments, all of which were classified as available for sale, are as follows:
As of December 31, 2006
(dollars in thousands) |
Amortized
Cost |
Gross
Unrealized
|
Gross
Unrealized
|
Estimated Fair Value |
|||||||||
Obligations of the U.S. Government and agencies |
$ | 30,999 | $ | 27 | $ | (257 | ) | $ | 30,769 | ||||
State & political subdivisions |
5,189 | | (175 | ) | 5,014 | ||||||||
Federal agency mortgage backed securities |
11,729 | 36 | (31 | ) | 11,734 | ||||||||
Other securities |
715 | 14 | (14 | ) | 715 | ||||||||
Total |
$ | 48,632 | $ | 77 | $ | (477 | ) | $ | 48,232 | ||||
As of December 31, 2005
(dollars in thousands) |
Amortized
Cost |
Gross
Unrealized
|
Gross
Unrealized
|
Estimated
Market
|
|||||||||
Obligations of the U.S. Government and agencies |
$ | 26,440 | $ | | $ | (447 | ) | $ | 25,993 | ||||
State & political subdivisions |
5,185 | | (171 | ) | 5,014 | ||||||||
Federal agency mortgage backed securities |
2,035 | | (6 | ) | 2,029 | ||||||||
Other securities |
354 | 11 | (4 | ) | 361 | ||||||||
Total |
$ | 34,014 | $ | 11 | $ | (628 | ) | $ | 33,397 | ||||
The following table shows the amount of securities that were in an unrealized loss position at December 31, 2006:
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 |
$ | 9,974 | $ | (26 | ) | $ | 16,269 | $ | (231 | ) | $ | 26,243 | $ | (257 | ) | ||||||
State and political subdivisions |
| | 5,014 | (175 | ) | 7,596 | (175 | ) | |||||||||||||
Federal agency mortgage backed securities |
2,582 | (18 | ) | 1,634 | (13 | ) | 1,634 | (31 | ) | ||||||||||||
Other |
343 | (7 | ) | 243 | (7 | ) | 586 | (14 | ) | ||||||||||||
Total temporarily impaired securities |
$ | 12,899 | $ | (51 | ) | $ | 23,160 | $ | (426 | ) | $ | 36,059 | $ | (477 | ) | ||||||
The Corporation has concluded that the unrealized losses presented in the table above are temporary in nature as they are primarily related to market interest rates and are not related to the underlying credit quality of the issuers. None of the investments are believed to be other-than-temporarily impaired. The Corporation has the ability and intent to hold the securities until maturity to recover the entire value. At
26
December 31, 2006 securities having a book value of $15.9 million were pledged as collateral for public funds, trust deposits, and other purposes.
The amortized cost and estimated market value of investment securities at December 31, 2006 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
2006 | ||||||
(dollars in thousands) |
Amortized
Cost |
Estimated
Market
|
||||
Due in one year or less |
$ | 6,500 | $ | 6,469 | ||
Due after one year through five years |
17,029 | 16,786 | ||||
Due after five years through ten years |
12,659 | 12,528 | ||||
Due after ten years |
| | ||||
Other securities |
715 | 715 | ||||
Subtotal |
36,903 | 36,498 | ||||
Mortgage backed securities |
11,729 | 11,734 | ||||
Total |
$ | 48,632 | $ | 48,232 | ||
There were no sales of debt securities during 2006, 2005 or 2004.
3. L OANS AND L EASES
Loans and leases outstanding at December 31 are detailed by category as follows:
(dollars in thousands) |
2006 | 2005 | |||||
Loans held for sale |
$ | 3,726 | $ | 2,765 | |||
Real estate loans: |
|||||||
Commercial mortgage loans |
198,407 | 162,621 | |||||
Home equity lines and loans |
113,068 | 107,699 | |||||
Residential mortgage loans |
103,572 | 99,602 | |||||
Construction loans |
74,798 | 45,523 | |||||
Commercial and industrial loans |
175,278 | 170,283 | |||||
Consumer loans |
9,156 | 9,437 | |||||
Leases |
7,012 | | |||||
Total portfolio loans and leases |
681,291 | 595,165 | |||||
Total loans and leases |
$ | 685,017 | $ | 597,930 | |||
Loans with predetermined rates |
266,260 | 393,782 | |||||
Loans with adjustable or floating rates |
418,757 | 204,148 | |||||
Total loans and leases |
$ | 685,017 | $ | 597,930 | |||
Net deferred loan origination costs and (fees) included in the above loan numbers |
$ | 146 | $ | (594 | ) | ||
Non-accrual loans |
$ | 704 | $ | 261 | |||
Loans past due 90 days or more and still accruing |
$ | 119 | $ | 129 | |||
Information regarding impaired loans is as follows:
(dollars in thousands) |
2006 | 2005 | 2004 | ||||||
Impaired loans at year end |
$ | 704 | $ | 261 | $ | 1,353 | |||
Average impaired loans for the year |
$ | 801 | $ | 825 | $ | 794 | |||
A summary of the changes in the allowance for impaired loans is as follows:
2006 | 2005 | 2004 | ||||||||||
Balance, January 1 |
$ | 66 | $ | 5 | $ | 1 | ||||||
Charge-offs |
(120 | ) | (156 | ) | (598 | ) | ||||||
Recoveries |
5 | 17 | 2 | |||||||||
Provision |
150 | 200 | 600 | |||||||||
Balance, December 31 |
$ | 101 | $ | 66 | $ | 5 | ||||||
Interest income that would have been recognized under original terms |
$ | 28 | $ | 54 | $ | 88 | ||||||
Interest income actually received |
$ | 13 | $ | 27 | $ | 21 | ||||||
Interest income recognized |
$ | 39 | $ | 22 | $ | 5 | ||||||
Interest income recognized using the cash basis method of income recognition |
$ | 39 | $ | 22 | $ | 5 | ||||||
4. A LLOWANCE FOR L OAN AND L EASE L OSSES
The summary of the changes in the allowance for loan and lease losses is as follows:
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Balance, January 1 |
$ | 7,402 | $ | 6,927 | $ | 6,670 | ||||||
Charge-offs |
(151 | ) | (314 | ) | (692 | ) | ||||||
Recoveries |
39 | 27 | 49 | |||||||||
Provision |
832 | 762 | 900 | |||||||||
Balance, December 31 |
$ | 8,122 | $ | 7,402 | $ | 6,927 | ||||||
5. P REMISES AND E QUIPMENT
A summary of premises and equipment at December 31 is as follows:
(dollars in thousands) |
2006 | 2005 | ||||||
Land |
$ | 2,974 | $ | 2,974 | ||||
Buildings |
13,829 | 13,749 | ||||||
Furniture and equipment. |
16,303 | 15,642 | ||||||
Leasehold improvements |
3,726 | 4,211 | ||||||
Construction in progress |
3,023 | | ||||||
Less: accumulated depreciation |
(23,284 | ) | (21,954 | ) | ||||
Total |
$ | 16,571 | $ | 14,622 | ||||
Depreciation and amortization expense related to the assets detailed in above table for the years ended December 31, 2006, 2005 and 2004 amounted to $1.354 million, $1.398 million and $1.310 million, respectively.
Refer to Note 24 Subsequent Event with respect to the sale of the property that previously served as the Wynnewood branch location to an independent third party in February 2007.
27
Future minimum cash rent commitments under various operating leases as of December 31, 2006 are as follows:
(dollars in thousands) |
|||
2007 |
$ | 891 | |
2008 |
950 | ||
2009 |
884 | ||
2010 |
891 | ||
2011 |
891 | ||
Thereafter |
$ | 17,418 |
Rent expense for the years ended December 31, 2006, 2005 and 2004 amounted to $905 thousand, $769 thousand
6. M ORTGAGE S ERVICING
The following summarizes the Corporations activity related to MSRs for the years ended December 31, 2006 and 2005:
(dollars in thousands) |
2006 | 2005 | ||||||
Balance, January 1 |
$ | 2,982 | $ | 3,172 | ||||
Additions |
263 | 416 | ||||||
Amortization |
(348 | ) | (606 | ) | ||||
Impairment |
(14 | ) | | |||||
Balance, December 31 |
$ | 2,883 | $ | 2,982 | ||||
Fair Value |
$ | 4,289 | $ | 4,843 | ||||
Loans serviced for others |
$ | 382,141 | $ | 417,649 | ||||
The following summarizes the Corporations activity related to changes in the impairment valuation allowance of MSRs for the years ended December 31, 2006 and 2005:
2006 | 2005 | |||||||
Balance, January 1 |
$ | | $ | | ||||
Impairment |
(14 | ) | 42 | |||||
Recovery |
| (42 | ) | |||||
Balance, December 31 |
$ | (14 | ) | $ | | |||
At December 31, 2006, 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:
Fair value amount of MSRs |
$ | 4,289 | ||
Weighted average life (in years) |
6.6 | |||
Prepayment speeds (constant prepayment rate)* |
11.6 | % | ||
Impact on fair value: |
||||
10% adverse change |
(180 | ) | ||
20% adverse change |
(349 | ) | ||
Discount rate |
11.0 | % | ||
Impact on fair value: |
||||
10% adverse change |
(118 | ) | ||
20% adverse change |
(239 | ) |
* | Represents the weighted average prepayment rate for the life of the MSR asset . |
These assumptions and sensitivities are hypothetical and should be used with caution. 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 realty, changes
7. D EPOSITS
Following is a summary of deposits as of December 31,
(dollars in thousands) |
2006 | 2005 | ||||
Savings |
$ | 40,441 | $ | 46,258 | ||
NOW accounts |
143,742 | 154,319 | ||||
Market rate accounts |
111,338 | 112,319 | ||||
Time deposits (less than $100,000) |
80,110 | 67,541 | ||||
Time deposits, $100,000 or more |
120,336 | 82,781 | ||||
Wholesale deposits |
19,976 | 5,000 | ||||
Total interest-bearing deposits |
515,943 | 468,218 | ||||
Non-interest-bearing deposits |
198,546 | 168,042 | ||||
Total deposits |
$ | 714,489 | $ | 636,260 | ||
The aggregate amount of deposit overdrafts included as loans as of December 31, 2006 and 2005 were $473 thousand and $1.870 million, respectively.
Maturity of time deposits as of December 31, 2006 were as follows:
(dollars in thousands) |
$100,000
or more |
Less than
$100,000 |
||||
Maturing during: |
||||||
2007 |
$ | 118,470 | $ | 73,900 | ||
2008 |
1,521 | 4,556 | ||||
2009 |
110 | 1,219 | ||||
2010 |
235 | 237 | ||||
2011 |
| 45 | ||||
2012 and Thereafter |
| 153 | ||||
Total |
$ | 120,336 | $ | 80,110 | ||
8. B ORROWED F UNDS
The year end borrowing of $15 million is a mid-term advance with an original maturity of six months. This advance is priced at one month LIBOR plus six basis points with the rate resetting monthly.
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Average balance during the year |
$ | 19,442 | $ | 1,700 | $ | 849 | ||||||
Year end balance |
15,000 | | | |||||||||
Highest month end balance |
46,300 | 12,385 | 13,100 | |||||||||
Weighted-average interest rate during the year |
5.36 | % | 3.35 | % | 1.18 | % | ||||||
Weighted-average interest rate at year end |
5.41 | % | | |
28
9. D ISCLOSURE ABOUT F AIR V ALUE OF F INANCIAL I NSTRUMENTS
SFAS No. 107 Disclosures about Fair Value of Financial Instruments (FAS 107) requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. FAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair values.
Investment Securities
Estimated fair values for investment securities are based on quoted market price, where available.
Loans and Leases
For variable rate loans that reprice frequently and which have no significant change in credit risk, estimated fair values are based on carrying values. Fair values of certain mortgage loans and consumer loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The estimated fair value of nonperforming loans is based on discounted estimated cash flows as determined by the internal loan review of the Bank or the appraised market value of the underlying collateral, as determined by independent third party appraisers.
Other Assets
The carrying amount of accrued interest receivable and other investments approximates fair value.
Deposits
The estimated fair values disclosed for noninterest-bearing demand deposits, NOW accounts, and Market Rate accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on the certificate of deposit. FAS 107 defines the fair value of demand deposits as the amount payable on demand and prohibits adjusting estimated fair value from any value derived from retaining those deposits for an expected future period of time.
Borrowed Funds
Due to the short term nature of the maturities the carrying amount of the borrowings approximates the fair value. There were $15 million in borrowed funds at December 31, 2006 and no borrowed funds as of December 31, 2005.
Other Liabilities
The carrying amounts of accrued interest payable, accrued taxes payable and other accrued payables approximates fair value.
Off-Balance Sheet Instruments
Estimated fair values of the Corporations off-balance sheet instruments (standby letters of credit and loan commitments) are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and estimated fair values of off-balance sheet instruments.
The carrying amount and estimated fair value of the Corporations financial instruments as of December 31 are as follows:
2006 | 2005 | |||||||||||
(dollars in thousands) |
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
||||||||
Financial assets: |
||||||||||||
Cash and due from banks |
$ | 61,473 | $ | 61,473 | $ | 33,896 | $ | 33,896 | ||||
Interest-bearing deposits with other banks |
532 | 532 | 405 | 405 | ||||||||
Federal funds sold |
| | 32,341 | 32,341 | ||||||||
Investment securities |
48,232 | 48,232 | 33,397 | 33,397 | ||||||||
Mortgage servicing rights |
2,883 | 4,289 | 2,982 | 4,843 | ||||||||
Loans held for sale |
3,726 | 3,726 | 2,765 | 2,765 | ||||||||
Other assets |
8,635 | 8,635 | 4,859 | 4,859 | ||||||||
Net loans |
673,169 | 669,042 | 587,763 | 580,370 | ||||||||
Total financial assets |
$ | 798,650 | $ | 795,929 | $ | 698,408 | $ | 692,876 | ||||
Financial liabilities: |
||||||||||||
Deposits |
$ | 714,489 | $ | 713,616 | $ | 636,260 | $ | 635,443 | ||||
Borrowed funds |
15,000 | 15,000 | | | ||||||||
Other liabilities |
4,572 | 4,572 | 3,951 | 3,951 | ||||||||
Total financial liabilities |
$ | 734,064 | $ | 733,188 | $ | 640,211 | $ | 639,394 | ||||
Off-balance sheet instruments |
$ | 325,995 | $ | 325,995 | $ | 328,069 | $ | 328,069 | ||||
29
10. T HRIFT AND S AVINGS P LAN (T HRIFT P LAN )
The Corporation has a qualified defined contribution plan for all eligible employees under which the Corporation contributes $1.00 for each $1.00 that an employee contributes up to a maximum of 3.00% of the employees base salary. The Corporations expenses for the Thrift Plan were $362 thousand, $339 thousand and $347 thousand in 2006, 2005 and 2004 respectively.
11. P ENSION AND P OSTRETIREMENT B ENEFIT P LANS
The Corporation has two defined benefit pension plans, the qualified defined benefit plan (QDBP) which covers all employees over age 20 1/2 who meet certain service requirements and the non-qualified defined benefit pension plan (SERP) which is restricted to certain executive officers of the Corporation. The Corporation also has a postretirement benefit plan (PRBP) that covers certain retired employees and a group of current employees. The PRBP was closed to new participants in 1994.
The Corporation adopted FAS 158 on December 31, 2006. As a result of its adoption, the Corporation recorded additional pension liabilities of $6.5 million, deferred taxes of $2.3 million and a reduction of accumulated other comprehensive income (shareholders equity) of $4.2 million effective December 31, 2006.
This reduction in shareholders equity does not have an impact on regulatory capital, as Federal bank and thrift regulatory agencies announced an interim decision in December 2006 that FAS No. 158 will not affect a bank organizations regulatory capital in 2006. See Note 20 Regulatory Capital Requirements for more information.
The following table provides information with respect to these plans, including benefit obligations and funded status, net periodic pension
Actuarial Assumptions Used in the Tables Below:
QDBP | SERP | PRBP | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||
Used to determine benefit obligations as of December 31 |
||||||||||||||||||
Discount rate |
5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | ||||||
Rate of increase for future compensation |
4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | ||||||
Used to determine periodic benefit cost for the years ended December 31: |
||||||||||||||||||
Discount rate |
5.75 | % | 6.00 | % | 5.75 | % | 6.00 | % | 5.75 | % | 6.00 | % | ||||||
Rate of increase for future compensation |
4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | ||||||
Expected long-term rate of return on plan assets |
8.50 | % | 8.50 | % | N/A | N/A | N/A | N/A | ||||||||||
Assumed health care cost trend rates as of December 31: |
||||||||||||||||||
Cost trend rate assumed for next year |
N/A | N/A | N/A | N/A | 10.00 | % | 11.00 | % | ||||||||||
Rate to which the cost trend rate is assumed to decline |
N/A | N/A | N/A | N/A | 0.00 | % | 0.00 | % | ||||||||||
Year that the rate reaches the ultimate trend rate |
N/A | N/A | N/A | N/A | 2007 | 2006 |
30
Changes in Benefit Obligations and Plan Assets:
QDBP | SERP | PRBP | ||||||||||||||||||||||
(dollars in thousands) |
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||
Change in benefit obligation |
||||||||||||||||||||||||
Benefit obligation at January 1 |
$ | 28,748 | $ | 26,348 | $ | 2,012 | $ | 2,058 | $ | 2,448 | $ | 3,152 | ||||||||||||
Service cost |
1,155 | 1,123 | 36 | 44 | 12 | 12 | ||||||||||||||||||
Interest cost |
1,591 | 1,538 | 99 | 112 | 108 | 143 | ||||||||||||||||||
Amendments |
| | | | | (860 | ) | |||||||||||||||||
Actuarial (gain) loss |
(498 | ) | 642 | (229 | ) | (71 | ) | (499 | ) | 218 | ||||||||||||||
Benefits paid |
(1,005 | ) | (903 | ) | (130 | ) | (131 | ) | (188 | ) | (217 | ) | ||||||||||||
Benefit obligation at December 31 |
$ | 29,991 | $ | 28,748 | $ | 1,788 | $ | 2,012 | $ | 1,881 | $ | 2,448 | ||||||||||||
Change in plan assets |
||||||||||||||||||||||||
Fair value of plan assets at January 1 |
$ | 26,726 | $ | 25,839 | $ | | $ | | $ | | $ | | ||||||||||||
Actual return on plan assets |
2,800 | 902 | | | | |||||||||||||||||||
Employer contribution |
2,100 | 939 | 130 | 131 | 188 | 217 | ||||||||||||||||||
Plan participants contribution |
| | | | | | ||||||||||||||||||
Benefits paid |
(1,005 | ) | (903 | ) | (130 | ) | (131 | ) | (188 | ) | (217 | ) | ||||||||||||
Administrative expense |
| (50 | ) | | | | | |||||||||||||||||
Fair value of plan assets at December 31 |
$ | 30,621 | $ | 26,727 | $ | | $ | | $ | | $ | | ||||||||||||
Funded status at year end (plan assets less benefit obligation) |
$ | 630 | $ | (2,021 | ) | $ | (1,788 | ) | $ | (2,012 | ) | $ | (1,881 | ) | $ | (2,448 | ) | |||||||
Reconciliation of funded status:
A reconciliation of the funded status at the end of the measurement period to the net amounts recognized in the consolidated balance sheet as of December 31 as follows:
QDBP | SERP | PRBP | ||||||||||||||||||||||
(dollars in thousands) |
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||
Funded status at December 31 |
$ | 630 | $ | (2,021 | ) | $ | (1,788 | ) | $ | (2,012 | ) | $ | (1,881 | ) | $ | (2,448 | ) | |||||||
Unrecognized net actuarial (gain) loss |
N/A | 7,226 | N/A | 384 | N/A | 1,747 | ||||||||||||||||||
Unrecognized prior service cost |
N/A | 195 | N/A | 174 | N/A | (742 | ) | |||||||||||||||||
Unrecognized transition obligation (asset) |
N/A | | | N/A | N/A | 181 | ||||||||||||||||||
Net assets (liabilities) included in the consolidated balance sheet |
$ | 630 | $ | 5,400 | $ | (1,788 | ) | $ | (1,454 | ) | $ | (1,881 | ) | $ | (1,262 | ) | ||||||||
Amounts included in the consolidated balance sheet as other assets (liabilities) & accumulated other comprehensive income including the following: |
||||||||||||||||||||||||
Prepaid benefit cost/(accrued liability) |
$ | 6,408 | $ | 5,400 | $ | (1,744 | ) | $ | (2,000 | ) | $ | (1,197 | ) | $ | (1,262 | ) | ||||||||
Intangible asset |
| | | 174 | | | ||||||||||||||||||
Accumulated other comprehensive income |
(5,778 | ) | | (44 | ) | 372 | (684 | ) | | |||||||||||||||
Net amount recognized |
$ | 630 | $ | 5,400 | $ | (1,788 | ) | $ | (1,454 | ) | $ | (1,881 | ) | $ | (1,262 | ) | ||||||||
31
The following tables provide the components of net periodic pension costs for the years ended December 31, 2006, 2005 and 2004:
QDBP Net Periodic Pension Cost |
|
|||||||||||
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Service cost |
$ | 1,155 | $ | 1,123 | $ | 1,083 | ||||||
Interest cost |
1,591 | 1,538 | 1,455 | |||||||||
Expected return on plan assets |
(2,223 | ) | (2,153 | ) | (1,937 | ) | ||||||
Amortization of transition obligation (asset) |
| | 81 | |||||||||
Amortization of prior service cost |
81 | 81 | | |||||||||
Amortization of net actuarial (gain) loss |
488 | 350 | 253 | |||||||||
Net periodic pension cost |
$ | 1,092 | $ | 939 | $ | 935 | ||||||
SERP Net Periodic Pension Cost |
||||||||||||
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Service cost |
$ | 36 | $ | 44 | $ | 51 | ||||||
Interest cost |
99 | 112 | 118 | |||||||||
Expected return on plan assets |
| | | |||||||||
Amortization of transition obligation (asset) |
| | 49 | |||||||||
Amortization of prior service cost |
49 | 49 | | |||||||||
Amortization of net actuarial (gain) loss |
| 23 | 32 | |||||||||
Net periodic pension cost |
$ | 184 | $ | 228 | $ | 250 | ||||||
PRBP Net Periodic Pension Cost |
||||||||||||
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Service cost |
$ | 12 | $ | 12 | $ | 21 | ||||||
Interest cost |
108 | 143 | 188 | |||||||||
Expected return on plan assets |
| | | |||||||||
Amortization of transition obligation (asset) |
26 | 25 | 26 | |||||||||
Amortization of prior service cost |
(137 | ) | (137 | ) | | |||||||
Amortization of net actuarial (gain) loss |
126 | 203 | 185 | |||||||||
Net periodic pension cost |
$ | 135 | $ | 246 | $ | 420 | ||||||
Adoption of FAS 158
The following tables reflect information relative to the adoption of FAS 158:
(dollars in thousands) |
December 31,
2006 Prior to Adoption of FAS 158 |
FAS 158
Adoption Adjustment |
December 31,
2006 Post Adoption of FAS 158 |
|||||||||
QDBP prepaid expense |
$ | 6,408 | $ | (5,778 | ) | $ | 630 | |||||
SERP liability |
(1,744 | ) | (44 | ) | (1,788 | ) | ||||||
PRBP liability |
(1,197 | ) | (684 | ) | (1,881 | ) | ||||||
Accumulated other comprehensive income (loss), net of taxes |
(222 | ) | (4,228 | ) | (4,450 | ) | ||||||
Deferred taxes |
(1,315 | ) | 2,277 | 962 |
Estimated amounts that will be amortized from accumulated other comprehensive income over the next fiscal year:
(dollars in thousands) |
QDBP | SERP | PRBP | |||||||
Expected 2007 amortization of transition obligation |
$ | | $ | | $ | 26 | ||||
Expected 2007 amortization of prior service cost |
81 | 48 | (138 | ) | ||||||
Expected 2007 amortization of net loss |
| | |
Target Asset
Allocation |
Percentage of
QDBP Plan Assets at December 31 |
|||||||
2006 | 2005 | |||||||
Plan Assets: |
||||||||
Asset Category |
||||||||
Equity Securities* |
40% - 60% | 67 | % | 61 | % | |||
Debt Securities |
25% - 40% | 29 | % | 31 | % | |||
Real Estate |
5% - 15% | 0 | % | 0 | % | |||
Other |
5% - 15% | 4 | % | 8 | % | |||
Total |
100 | % | 100 | % | ||||
* | Includes Bryn Mawr Bank Corporation common stock in the amount of $721,000 (2%) and $661,000 (2%) at December 31, 2006 and 2005, respectively. |
The expected rate of return on plan assets in the QDBP was selected by Management after consultation with the Corporations actuary, and is based in part on long term historical rates of return and various actuarial assumptions. The discount rate was also selected by Management after consultation with the Corporations actuary, and is based in part upon the current yield of a basket of long term investment grade securities.
The investment strategy of the QDBP is to maintain the investment ranges listed above. The target
ranges are to be periodically reviewed based on the prevailing market conditions. Any modification to the current investment strategy must be ratified by the Executive Committee of the Corporations Board of Directors. The QDBP will retain
Cash Flows
The following benefit payments, which reflect expected future services, are expected to be paid over the next ten years:
(dollars in thousands) |
QDBP | SERP | PRBP | ||||||
Fiscal year ending |
|||||||||
2007 |
$ | 1,241 | $ | 130 | $ | 235 | |||
2008 |
1,343 | 135 | 230 | ||||||
2009 |
1,438 | 135 | 224 | ||||||
2010 |
1,493 | 135 | 209 | ||||||
2011 |
1,523 | 134 | 200 | ||||||
2012-2016 |
$ | 9,007 | $ | 751 | $ | 740 |
32
Other Pension and Post Retirement Benefit Information
In 2005 the Corporation capped the maximum payment under the post retirement benefit plan at 120% of the 2005 benefit. The current trend of 10% will achieve the cap in two years. Long term the impact of the cap will have an immaterial impact on the change in the trend.
Expected Contribution to be Paid in the Next Fiscal Year
Based on the status of the Corporations QDBP at December 31, 2006 no minimum funding requirement is anticipated for 2007. The
12. A PPLICABLE I NCOME T AXES
The components of the net deferred tax asset (liabilities) as of December 31 are as follows:
(dollars in thousands) |
2006 | 2005 | ||||||
Deferred tax assets: |
||||||||
Loan and lease loss reserve |
$ | 2,843 | $ | 2,591 | ||||
Other reserves |
379 | 293 | ||||||
PensionSERP and PRBP |
928 | 1,125 | ||||||
FAS 158 pension adjustments |
2,277 | | ||||||
Unrealized depreciation on investment securities |
140 | 216 | ||||||
Total deferred tax assets |
6,567 | 4,225 | ||||||
Deferred tax liabilities: |
||||||||
Depreciation |
(146 | ) | (268 | ) | ||||
Other reserves |
| (314 | ) | |||||
Cumulative effect of prior year misstatements (SAB 108) |
(223 | ) | | |||||
PensionQDBP |
(2,243 | ) | (1,890 | ) | ||||
Originated mortgage servicing rights |
(1,009 | ) | (1,044 | ) | ||||
Total deferred tax liability |
(3,621 | ) | (3,516 | ) | ||||
Total net deferred tax assets |
$ | 2,946 | $ | 709 | ||||
There was no valuation allowance as of December 31, 2006 and 2005 as management believes that it is more likely than not that the net deferred tax asset will be realized.
The provision for income taxes consists of the following:
(dollars in thousands) |
2006 | 2005 | 2004 | ||||||||
Currently payable |
$ | 7,185 | $ | 6,449 | $ | 4,714 | |||||
Deferred |
(496 | ) | (521 | ) | 38 | ||||||
Total |
$ | 6,689 | $ | 5,928 | $ | 4,752 | |||||
Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as follows:
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Computed tax expense at statutory federal rate |
$ | 6,792 | $ | 6,047 | $ | 4,934 | ||||||
Tax-exempt income |
(266 | ) | (187 | ) | (140 | ) | ||||||
Other, net |
163 | 68 | (42 | ) | ||||||||
Total income tax expense |
$ | 6,689 | $ | 5,928 | $ | 4,752 | ||||||
13. S TOCK O PTION P LAN :
The Corporations Stock Option Plan (the SOP) permits the issuance of options by the Boards Compensation Committee to key employees and Directors to purchase shares of the Corporations common stock. The option price is set at the last sale price for the stock on the day preceding the date of the grant. Options may either be incentive stock options within the meaning of the Internal Revenue Service Code or non-qualified options. The stock options are exercisable over a period determined by the Compensation Committee; however, the option period will not be longer than ten years from the date of the grant. The Compensation Committee determines the vesting period for the options. Unless the Compensation Committee provides to the contrary, at the time the options are granted, options vest at the rate of 33-1/3% per year. Shares subject to the SOP are currently authorized but unissued shares or treasury shares.
(dollars in thousands) |
Shares
Under Option |
Available
for Option |
Price Per Share |
Weighted
Average Exercise Price |
||||||||
Balance at January 1, 2004 |
594,384 | 16,512 | $4.34 $21.68 | $ | 14.69 | |||||||
Options authorized |
| 431,143 | | | ||||||||
Options granted |
138,750 | (138,750 | ) | $20.47 $22.68 | 20.51 | |||||||
Options exercised |
(37,350 | ) | | $10.50 $18.46 | 13.11 | |||||||
Options expired |
(5,002 | ) | 5,002 | $15.15 $18.32 | 18.32 | |||||||
Options forfeited |
(37,998 | ) | 37,998 | $14.49 $18.32 | 17.76 | |||||||
Balance at December 31, 2004 |
652,784 | 351,905 | $ 4.34 $22.68 | $ | 14.66 | |||||||
Options granted |
342,175 | (342,175 | ) | $18.91 $21.21 | 19.97 | |||||||
Options exercised |
(49,317 | ) | | $12.25 $18.91 | 13.09 | |||||||
Options expired |
(3,334 | ) | 3,334 | $15.15 $18.32 | 17.50 | |||||||
Options forfeited |
(8,000 | ) | 8,000 | $15.15 $20.47 | 19.02 | |||||||
Balance at December 31, 2005 |
934,308 | 21,064 | $ 6.25 $22.68 | $ | 17.44 | |||||||
Options granted |
11,375 | (11,375 | ) | $21.74 $23.67 | 22.89 | |||||||
Options exercised |
(151,283 | ) | | $ 6.25 $21.21 | 16.59 | |||||||
Options expired |
(4,500 | ) | 4,500 | $21.21 $21.68 | 21.31 | |||||||
Options forfeited |
| | | | ||||||||
Balance at December 31, 2006 |
789,900 | 14,189 | $ | 8.45 $23.67 | $ | 17.66 | ||||||
Information pertaining to options outstanding at December 31, 2006 is as follows:
Price Range of Shares Under Option at December 31, 2006 | |||||||||||||||
(dollars in thousands) |
Shares
Under Option |
Price Per Share |
Weighted
Average Remaining Contractual Life |
Weighted
Average Exercise Price |
Number
Exercisable |
Weighted Average Exercise Price |
|||||||||
51,200 | $ | 8.45 $10.75 | 2.7 | $ | 10.07 | 51,200 | $ | 10.07 | |||||||
157,700 | $ | 12.25 $15.15 | 3.1 | 13.31 | 157,700 | 13.31 | |||||||||
323,200 | $ | 16.25 $18.91 | 7.2 | 18.34 | 323,200 | 18.34 | |||||||||
257,800 | $ | 19.11 $23.67 | 8.4 | 20.98 | 246,425 | 20.89 | |||||||||
Balance at December 31, 2006 |
789,900 | $ | 8.45 $23.67 | 6.3 | $ | 17.66 | 778,525 | $ | 17.58 | ||||||
33
Shares exercisable and weighted average exercise price at December 31, 2006, 2005 and 2004:
2006 | 2005 | 2004 | |||||||
Shares exercisable |
778,525 | 900,974 | 412,479 | ||||||
Weighted average exercise price |
$ | 17.58 | $ | 17.42 | $ | 13.58 |
Expected dividend yield is determined based on the companys annual dividend amount as a percentage of the average stock price at the time of the grant. Expected volatility of the Corporations stock is determined based on the historic volatility of the companys stock price. The risk free interest rate is determined based on a yield curve of the U.S. Treasury rates ranging from one month to ten years and a period commensurate with the expected life of the option.
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2006, 2005 and 2004 as follows:
2006 | 2005 | 2004 | |||||||||
Expected dividend yield |
1.94% - 2.03% | 2.07 | % | 1.76 | % | ||||||
Expected volatility of Corporations stock |
23.56 - 24.61% | 20.5 | % | 21.1 | % | ||||||
Risk-free interest rate |
5.00% | 4.50 | % | 3.90 | % | ||||||
Expected life in years |
6.0 - 6.8 | 6 | 6 | ||||||||
Weighted average fair value of options granted |
$ | 6.45 | $ | 4.41 | $ | 4.61 |
Stock appreciation rights may be granted in tandem with non-qualified stock options. No stock appreciation rights have been granted under the SOP.
The following table provides information about options outstanding for the twelve months ended December 31, 2006, 2005 and 2004:
2006 | 2005 | 2004 | |||||||||||||||||||||||||
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 |
934,308 | $ | 17.44 | $ | 3.74 | 652,784 | $ | 15.80 | $ | 3.31 | 594,384 | $ | 14.69 | $ | 2.99 | ||||||||||||
Granted |
11,375 | 22.89 | 6.44 | 342,175 | 19.97 | 4.41 | 138,750 | 20.51 | 4.61 | ||||||||||||||||||
Forfeited |
| | | (8,000 | ) | 19.77 | 4.42 | (37,998 | ) | 17.76 | 3.76 | ||||||||||||||||
Expired |
(4,500 | ) | 21.31 | 4,84 | (3,334 | ) | 17.50 | 3.66 | (5,002 | ) | 18.32 | 3.72 | |||||||||||||||
Exercised |
(151,283 | ) | 16.59 | 3.54 | (49,317 | ) | 13.09 | 2.65 | (37,350 | ) | 13.39 | 2.62 | |||||||||||||||
Options outstanding, end of period |
789,900 | $ | 17.66 | $ | 3.81 | 934,308 | $ | 17.44 | $ | 3.73 | 652,784 | $ | 15.80 | $ | 3.31 |
The following table provides information about unvested options for the twelve months ended December 31, 2006, 2005 and 2004:
2006 | 2005 | 2004 | ||||||||||||||||
Shares |
Weighted
Average Grant Date Fair Value |
Shares |
Weighted
Average Grant Date Fair Value |
Shares |
Weighted
Average Grant Date Fair Value |
|||||||||||||
Unvested options, beginning of period |
33,334 | $ | 3.99 | 246,753 | $ | 4.29 | 257,701 | $ | 3.70 | |||||||||
Granted |
11,375 | 6.44 | 342,175 | 4.41 | 138,750 | 4.61 | ||||||||||||
Vested |
(33,334 | ) | 3.98 | (550,594 | ) | 4.39 | (110,701 | ) | 3.49 | |||||||||
Forfeited |
| | (5,000 | ) | 4.42 | (38,997 | ) | 3.76 | ||||||||||
Unvested options, end of period |
11,375 | $ | 6.44 | 33,334 | $ | 3.98 | 246,753 | $ | 4.29 |
Proceeds, related tax benefits realized from options exercised, and intrinsic value of options exercised were as follows:
(dollars in thousands) |
2006 | 2005 | 2004 | ||||||
Proceeds from strike price of value of options exercised |
$ | 2,511 | $ | 643 | $ | 500 | |||
Related tax benefit recognized |
293 | 139 | 107 | ||||||
Proceeds of options exercised |
2,804 | 782 | 607 | ||||||
Intrinsic value of options exercised |
$ | 838 | $ | 397 | $ | 305 | |||
The following table provides information about options outstanding and exercisable options at December 31, 2006, 2005 and 2004:
2006 | 2005 | 2004 | ||||||||||||||||
Options
Outstanding |
Exercisable
Options |
Options
Outstanding |
Exercisable
Options |
Options
Outstanding |
Exercisable
Options |
|||||||||||||
Number |
789,900 | 778,525 | 934,308 | 900,974 | 652,784 | 403,031 | ||||||||||||
Weighted average exercise price |
$ | 17.66 | $ | 17.58 | $ | 17.44 | $ | 17.42 | $ | 15.80 | $ | 13.61 | ||||||
Aggregate intrinsic value |
4,723,408 | 4,714,695 | 3,943,449 | 3,822,955 | 4,253,014 | 3,519,841 | ||||||||||||
Weighted average contractual term |
6.3 | 6.3 | 6.9 | 6.9 | 6.5 | 5.2 |
The unamortized stock based compensation expense at December 31, 2006 is $68,344 which will be recognized over the next 35 months.
34
14. E ARNINGS P ER S HARE
The calculation of basic earnings per share and diluted earnings per share is presented below. 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 Note 1 Summary of Significant Accounting Policies: Earnings Per Common Share for a discussion on
Earnings Per Share
Year Ended December 31, | |||||||||
(dollars in thousands, except per share data) |
2006 | 2005 | 2004 | ||||||
Numerator Net income available to common shareholders |
$ | 12,716 | $ | 11,350 | $ | 9,345 | |||
Denominator for basic earnings per share Weighted average shares outstanding |
8,578,050 | 8,563,027 | 8,610,171 | ||||||
Effect of dilutive potential common shares |
113,579 | 101,200 | 110,854 | ||||||
Denominator for diluted earnings per share Adjusted weighted average shares outstanding |
8,691,629 | 8,664,227 | 8,721,025 | ||||||
Basic earnings per share |
$ | 1.48 | $ | 1.33 | $ | 1.09 | |||
Diluted earnings per share |
$ | 1.46 | $ | 1.31 | $ | 1.07 | |||
Antidulitive shares excluded from computation of average dilutive earnings per share |
2,722 | 161,300 | 3,250 | ||||||
15. O THER O PERATING I NCOME
Components of other operating income for the years ended December 31 include:
(dollars in thousands) |
2006 | 2005 | 2004 | ||||||
Cash management |
$ | 542 | $ | 476 | $ | 518 | |||
Safe deposit |
330 | 339 | 321 | ||||||
Insurance commissions |
343 | 318 | 299 | ||||||
Rent |
244 | 306 | 246 | ||||||
Title insurance |
67 | 153 | 112 | ||||||
Miscellaneous |
793 | 656 | 505 | ||||||
Other operating income |
$ | 2,319 | $ | 2,248 | $ | 2,001 | |||
16. O THER O PERATING E XPENSE
Components of other operating expense for the years ended December 31 include:
(dollars in thousands) |
2006 | 2005 | 2004 | ||||||
Computer processing |
$ | 450 | $ | 463 | $ | 531 | |||
Stationery & supplies |
221 | 295 | 336 | ||||||
Other taxes (shares, sales & use) |
463 | 622 | 466 | ||||||
Telephone |
281 | 302 | 284 | ||||||
Loan processing and closing |
435 | 489 | 799 | ||||||
Temporary help & recruiting |
441 | 365 | 285 | ||||||
Travel and entertainment |
355 | 317 | 348 | ||||||
Miscellaneous |
2,015 | 1,712 | 1,794 | ||||||
Other operating expenses |
$ | 4,661 | $ | 4,565 | $ | 4,843 | |||
17. R ELATED P ARTY T RANSACTIONS
In the ordinary course of business, the Bank granted loans to principal officers, directors and their affiliates. Loan activity during 2006 and 2005 was as follows:
Following is a summary of these transactions:
(dollars in thousands) |
2006 | 2005 | ||||||
Balance, January 1 |
$ | 19,070 | $ | 18,105 | ||||
Additions |
2,892 | 2,473 | ||||||
Amounts collected |
(6,251 | ) | (1,508 | ) | ||||
Balance, December 31 |
$ | 15,711 | $ | 19,070 | ||||
Related party deposits amounted to $467 thousand and $3.230 million at December 31, 2006 and 2005, respectively.
18. F INANCIAL I NSTRUMENTS WITH O FF -B ALANCE S HEET R ISK AND C ONCENTRATION OF C REDIT R ISK
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 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 Corporations 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.
35
Commitments to extend credit 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, 2006 were $314.3 million. The Corporation evaluates each customers 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 managements 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 Corporations obligation under standby letters of credit as of December 31, 2006 amounted to $11.7 million. There were no outstanding bankers acceptances as of December 31, 2006.
The Corporation has a material portion of its loans in real estate related loans. A predominant percentage of the Corporations real estate exposure, both commercial and residential, is in the Corporations primary trade area which includes portions of Delaware, Chester, Montgomery and Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and mitigates this risk to the extent possible in many ways, including the underwriting and assessment of borrowers capacity to repay.
As of December 31, 2006, the Corporation had no loans sold with recourse outstanding.
19. D IVIDEND R ESTRICTIONS
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 shareholder, the Corporation. The Code restricts the payment of dividends by the Bank to the amount of its retained earnings which was $73.3 million as of December 31, 2006. However, the amount of dividends paid by the Bank cannot reduce capital levels below levels that would cause the Bank to be less than adequately capitalized as detailed in Note 20 Regulatory Capital Requirements.
20. R EGULATORY C APITAL R EQUIREMENTS
Both the Corporation 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 the Corporations and the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation 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.
As set forth in the following table, quantitative measures have been established to ensure capital adequacy ratios required of both the Corporation and Bank. Both the Corporations and the Banks Tier II capital ratios are calculated by adding back a portion of the loan loss reserve to the Tier I capital. Management believes, as of December 31, 2006 and 2005 that the Corporation and the Bank have met all capital adequacy requirements to which they are 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 the Corporation and the Bank are classified as well capitalized as of December 31, 2006 and 2005.
See Note 11 Pension and Post Retirement Benefit Plans for certain information relating to a reduction in capital and related regulatory capital impact.
36
The Corporations and the Banks actual capital amounts and ratios as of December 31, 2006 and 2005 are presented in the following table:
Actual |
Minimum to be Adequately Capitalized |
Minimum
to be Well
|
||||||||||||||
(dollars in thousands) |
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||
December 31, 2006 |
||||||||||||||||
Total (Tier II) Capital to Risk Weighted Assets: |
||||||||||||||||
Corporation |
$ | 95,090 | 12.46 | % | 61,056 | 8.0 | % | 76,320 | 10.0 | % | ||||||
Bank |
88,026 | 11.60 | % | 60,703 | 8.0 | % | 75,879 | 10.0 | % | |||||||
Tier I Capital to Risk Weighted Assets: |
||||||||||||||||
Corporation |
86,832 | 11.38 | % | 30,528 | 4.0 | % | 45,792 | 6.0 | % | |||||||
Bank |
79,898 | 10.53 | % | 30,351 | 4.0 | % | 45,527 | 6.0 | % | |||||||
Tier I Capital to Quarterly Average Assets: |
||||||||||||||||
Corporation |
86,832 | 11.04 | % | 31,453 | 4.0 | % | 39,317 | 5.0 | % | |||||||
Bank |
79,898 | 10.20 | % | 31,344 | 4.0 | % | 39,167 | 5.0 | % | |||||||
December 31, 2005 |
||||||||||||||||
Total (Tier II) Capital to Risk Weighted Assets: |
||||||||||||||||
Corporation |
$ | 85,322 | 12.46 | % | 54,766 | 8.0 | % | 68,457 | 10.0 | % | ||||||
Bank |
78,048 | 11.47 | % | 54,424 | 8.0 | % | 68,030 | 10.0 | % | |||||||
Tier I Capital to Risk Weighted Assets: |
||||||||||||||||
Corporation |
77,915 | 11.38 | % | 27,383 | 4.0 | % | 41,074 | 6.0 | % | |||||||
Bank |
70,641 | 10.38 | % | 27,212 | 4.0 | % | 40,818 | 6.0 | % | |||||||
Tier I Capital to Quarterly Average Assets: |
||||||||||||||||
Corporation |
77,915 | 11.25 | % | 27,692 | 4.0 | % | 34,615 | 5.0 | % | |||||||
Bank |
70,641 | 10.26 | % | 27,529 | 4.0 | % | 34,412 | 5.0 | % |
21. S ELECTED Q UARTERLY F INANCIAL D ATA (U NAUDITED )
Quarters Ending 2006 | ||||||||||||
(dollars in thousands, except per share data) |
3/31 | 6/30 | 9/30 | 12/31 | ||||||||
Interest income |
$ | 10,345 | $ | 11,098 | $ | 12,017 | $ | 12,446 | ||||
Interest expense |
2,164 | 2,795 | 3,627 | 4,021 | ||||||||
Net interest income |
8,181 | 8,303 | 8,390 | 8,425 | ||||||||
Provision for loan and lease losses |
154 | 209 | 258 | 211 | ||||||||
Income before income taxes |
4,781 | 4,767 | 4,865 | 4,992 | ||||||||
Net income. |
$ | 3,136 | $ | 3,137 | $ | 3,235 | $ | 3,208 | ||||
Basic earnings per common share |
$ | .37 | $ | .37 | $ | .38 | $ | .37 | ||||
Diluted earnings per common share |
$ | .36 | $ | .36 | $ | .37 | $ | .37 | ||||
Quarters Ending 2005 | ||||||||||||
(dollars in thousands, except per share data) |
03/31 | 6/30 | 9/30 | 12/31 | ||||||||
Interest income |
$ | 8,663 | $ | 9,172 | $ | 9,835 | $ | 10,238 | ||||
Interest expense |
1,303 | 1,544 | 1,788 | 1,965 | ||||||||
Net interest income |
7,360 | 7,628 | 8,047 | 8,273 | ||||||||
Provision for loan losses |
187 | 193 | 209 | 173 | ||||||||
Income before income taxes |
4,211 | 4,305 | 4,375 | 4,387 | ||||||||
Net income |
$ | 2,802 | $ | 2,788 | $ | 2,876 | $ | 2,884 | ||||
Basic earnings per common share |
$ | 0.33 | $ | 0.33 | $ | 0.34 | $ | 0.34 | ||||
Diluted earnings per common share |
$ | 0.32 | $ | 0.32 | $ | 0.33 | 0.33 |
37
22. C ONDENSED F INANCIAL S TATEMENTS
The condensed financial statements of the Corporation (parent company only) as of December 31, 2006 and 2005, and for each of the
Condensed Balance Sheets
(dollars in thousands) |
2006 | 2005 | ||||||
Assets: |
||||||||
Cash |
$ | 3,416 | $ | 3,135 | ||||
Investments in subsidiaries, at equity in net assets |
75,470 | 71,095 | ||||||
Premises and equipment, net |
3,270 | 3,368 | ||||||
Other assets |
818 | 582 | ||||||
Total assets |
$ | 82,974 | $ | 78,180 | ||||
Liabilities and shareholders equity: |
||||||||
Other liabilities |
$ | 592 | $ | 667 | ||||
Total liabilities |
592 | 667 | ||||||
Common stock, par value $1, authorized 25,000,000 shares as of December 31, 2006 and 2005, respectively, issued 11,373,182 shares and 11,221,899 shares as of December 31, 2006 and 2005, respectively and outstanding 8,562,209 shares and 8,556,255 shares as of December 31, 2006 and 2005, respectively |
11,373 | 11,222 | ||||||
Paid-in capital in excess of par value |
10,598 | 7,888 | ||||||
Accumulated other comprehensive income, net of deferred income taxes |
(4,450 | ) | (643 | ) | ||||
Retained earnings |
92,105 | 82,930 | ||||||
Less common stock in treasury, at cost2,810,973 shares and 2,665,644 shares as of December 31, 2006 and 2005 |
(27,244 | ) | (23,884 | ) | ||||
Total shareholders equity |
82,382 | 77,513 | ||||||
Total liabilities and shareholders equity |
$ | 82,974 | $ | 78,180 | ||||
Condensed Statements of Income
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||
Dividends from The Bryn Mawr Trust Company |
$ | 3,948 | $ | 3,599 | $ | 3,446 | ||||
Interest and other income |
701 | 326 | 236 | |||||||
Total operating income |
4,649 | 3,925 | 3,682 | |||||||
Expenses |
527 | 503 | 472 | |||||||
Income before equity in undistributed income of subsidiaries |
4,122 | 3,422 | 3,210 | |||||||
Equity in undistributed income of subsidiaries |
8,653 | 7,868 | 6,055 | |||||||
Income before income taxes |
12,775 | 11,290 | 9,265 | |||||||
Federal income tax (expense) benefit |
(59 | ) | 60 | 80 | ||||||
Net income |
$ | 12,716 | $ | 11,350 | $ | 9,345 | ||||
Condensed Statements of Cash Flows
(dollars in thousands) |
2006 | 2005 | 2004 | |||||||||
Operating activities: |
||||||||||||
Net Income |
$ | 12,716 | $ | 11,350 | $ | 9,345 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Equity in undistributed income of subsidiaries |
(8,653 | ) | (7,868 | ) | (6,055 | ) | ||||||
Depreciation and amortization |
98 | 99 | 98 | |||||||||
Other, net |
(215 | ) | 590 | (27 | ) | |||||||
Net cash provided by operating activities |
3,946 | 4,171 | 3,361 | |||||||||
Investing Activities: |
||||||||||||
Investment in Subsidiaries |
885 | 2,597 | 162 | |||||||||
Net cash provided by investing activities |
885 | 2,597 | 162 | |||||||||
Financing activities: |
||||||||||||
Dividends paid |
(3,948 | ) | (3,599 | ) | (3,446 | ) | ||||||
Repurchase of treasury stock |
(3,406 | ) | (1,990 | ) | (2,585 | ) | ||||||
Proceeds from exercise of stock options |
2,804 | 782 | 606 | |||||||||
Net cash used by financing activities |
(4,550 | ) | (4,807 | ) | (5,425 | ) | ||||||
Change in cash and cash equivalents |
281 | 1,961 | (1,902 | ) | ||||||||
Cash and cash equivalents at beginning of year |
3,135 | 1,174 | 3,076 | |||||||||
Cash and cash equivalents at end of year |
$ | 3,416 | $ | 3,135 | $ | 1,174 | ||||||
These statements should be read in conjunction with the Notes to the Consolidated Financial Statements.
23. S EGMENT I NFORMATION
FAS No. 131 Segment Reporting (FAS 131) identifies operating segments as components of an enterprise which are evaluated regularly by the Corporations Chief Executive Officer in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in FAS 131 to the results of its operations.
The Corporations 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 service charges on deposit accounts; cash sweep fees, overdraft fees and interchange revenue associated with its Visa Check Card offering.
The Wealth Management segment has responsibility for all fiduciary activities within the Corporation, including investment management, trust administration, brokerage, employee benefit administration, tax services and custodial services. This segment includes revenues and related expenses from an investment management agreement with another community bank.
The Mortgage Banking segment includes the origination of residential mortgage loans and the sale and servicing of such loans to the secondary mortgage market. This segment also includes the Corporations title insurance and joint mortgage origination activity with a real estate brokerage organization.
38
The All Other segment includes activities and expenses that do not fit into the other three segments including general corporate activities such as shareholder relations costs, NASDAQ fees and the annual meeting of shareholders. This segment also includes revenues and expenses from the Corporations insurance agency activities and interest income from notes receivable.
The Banking, Wealth Management and Mortgage Banking segments consolidate and roll-up through the Bank.
Segment information for the years ended December 31, 2006, 2005, and 2004 is as follows:
2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
Banking |
Wealth
Management |
Mortgage
Banking |
All
Other |
Consolidated | Banking |
Wealth
Management |
Mortgage
Banking |
All
Other |
Consolidated | Banking |
Wealth
Management |
Mortgage
Banking |
All
Other |
Consolidated | |||||||||||||||||||||||||||||||||||||||||||||
Net interest income |
$ | 33,108 | $ | | $ | 111 | $ | 80 | $ | 33,299 | $ | 31,123 | $ | | $ | 92 | $ | 93 | $ | 31,308 | $ | 26,506 | $ | | $ | 183 | $ | 105 | $ | 26,794 | ||||||||||||||||||||||||||||||
Less loan loss provision |
832 | | | | 832 | 762 | | | | 762 | 900 | | | | 900 | |||||||||||||||||||||||||||||||||||||||||||||
Net interest income after loan loss provision |
32,276 | | 111 | 80 | 32,467 | 30,361 | | 92 | 93 | 30,546 | 25,606 | | 183 | 105 | 25,894 | |||||||||||||||||||||||||||||||||||||||||||||
Other income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fees for investment management and trust services |
| 12,422 | | | 12,422 | | 11,539 | | | 11,539 | | 10,303 | | | 10,303 | |||||||||||||||||||||||||||||||||||||||||||||
Service charges on deposit accounts |
1,540 | | | | 1,540 | 1,593 | | | | 1,593 | 1,827 | | | | 1,827 | |||||||||||||||||||||||||||||||||||||||||||||
Other fees and service charges |
46 | | 1,080 | | 1,126 | 50 | | 1,253 | | 1,351 | 68 | | 1,564 | | 1,632 | |||||||||||||||||||||||||||||||||||||||||||||
Net gain on sale of loans |
| | 954 | | 954 | | | 1,622 | | 1,622 | 34 | | 2,886 | | 2,920 | |||||||||||||||||||||||||||||||||||||||||||||
Net gain on sale of mortgage servicing rights |
| | | | | | | | | | | | 1,145 | | 1,145 | |||||||||||||||||||||||||||||||||||||||||||||
Other operating income |
1,880 | | 208 | 231 | 2,319 | 1,625 | 3 | 340 | 280 | 2,248 | 1,524 | | 218 | 259 | 2,001 | |||||||||||||||||||||||||||||||||||||||||||||
Total other income |
3,466 | 12,422 | 2,242 | 231 | 18,361 | 3,268 | 11,542 | 3,215 | 280 | 18,305 | 3,453 | 10,303 | 5,813 | 259 | 19,828 | |||||||||||||||||||||||||||||||||||||||||||||
Other expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Salaries-regular |
9,647 | 3,782 | 598 | 167 | 14,194 | 9,006 | 3,620 | 624 | 195 | 13,445 | 8,726 | 3,736 | 904 | 200 | 13,566 | |||||||||||||||||||||||||||||||||||||||||||||
Salaries-other |
1,067 | 347 | 59 | 87 | 1,560 | 1,879 | 359 | 157 | 22 | 2,417 | 879 | 386 | 170 | 11 | 1,446 | |||||||||||||||||||||||||||||||||||||||||||||
Fringe benefits |
3,285 | 836 | 120 | 46 | 4,287 | 3,041 | 857 | 129 | 47 | 4,075 | 3,247 | 834 | 165 | 52 | 4,298 | |||||||||||||||||||||||||||||||||||||||||||||
Occupancy |
3,827 | 593 | 168 | (130 | ) | 4,458 | 3,453 | 641 | 242 | (123 | ) | 4,213 | 3,233 | 586 | 249 | (122 | ) | 3,946 | ||||||||||||||||||||||||||||||||||||||||||
Other operating expenses |
5,517 | 1,064 | 630 | (287 | ) | 6,924 | 5,093 | 1,082 | 1,105 | 144 | 7,423 | 5,288 | 1,098 | 1,679 | 304 | 8,369 | ||||||||||||||||||||||||||||||||||||||||||||
Total other expenses |
23,343 | 6,622 | 1,575 | (117 | ) | 31,423 | 22,472 | 6,559 | 2,257 | 285 | 31,573 | 21,373 | 6,640 | 3,167 | 445 | 31,625 | ||||||||||||||||||||||||||||||||||||||||||||
Segment profit (loss) |
12,399 | 5,800 | 778 | 428 | 19,405 | 11,157 | 4,983 | 1,050 | 88 | 17,278 | 7,686 | 3,663 | 2,829 | (81 | ) | 14,097 | ||||||||||||||||||||||||||||||||||||||||||||
Intersegment (revenues) expenses |
606 | 181 | 10 | (797 | ) | | 201 | 181 | | (382 | ) | | 166 | 181 | | (347 | ) | | ||||||||||||||||||||||||||||||||||||||||||
Pre-tax segment profit after eliminations |
$ | 13,005 | $ | 5,981 | $ | 788 | $ | (369 | ) | $ | 19,405 | $ | 11,358 | $ | 5,164 | $ | 1,050 | $ | (294 | ) | $ | 17,278 | $ | 7,852 | $ | 3,844 | $ | 2,829 | $ | (428 | ) | $ | 14,097 | |||||||||||||||||||||||||||
% of segment (loss) pre-tax profit (loss) after eliminations |
67.0 | % | 30.8 | % | 4.1 | % | (1.9 | )% | 100 | % | 65.7 | % | 29.9 | % | 6.1 | % | (1.7 | )% | 100.0 | % | 55.7 | % | 27.3 | % | 20.1 | % | (3.1 | )% | 100.0 | % |
Other Segment Data
(dollars in thousands) |
2006 | 2005 | 2004 | ||||||
Wealth Management Segment: |
|||||||||
Wealth Assets Under Management and Administration |
$ | 2,514,824 | $ | 2,247,630 | $ | 1,938,186 | |||
Mortgage Banking Segment: |
|||||||||
Mortgage Loans Serviced for Others |
$ | 382,141 | $ | 417,649 | $ | 507,421 | |||
Mortgage Servicing Rights |
$ | 2,883 | $ | 2,982 | $ | 3,172 |
Banking Segment: Substantially all of the assets of the Corporation and its subsidiaries are related to the Banking Segment and are reflected on the Consolidated Balance Sheet in these financial statements.
24. S UBSEQUENT E VENT S ALE OF W YNNEWOOD B RANCH
In January, 2007 the Corporation sold the property that previously served as the Wynnewood branch location to an independent third party for $1.850 million. The book value of the property was $443 thousand. All customer accounts and related activities were simultaneous transferred to the new Ardmore branch location which opened for business in January, 2007. The gain will be recognized in the first quarter of 2007.
39
PRICE RANGE OF SHARES
2006 HIGH - LOW QUOTATIONS |
HIGH BID | LOW BID |
DIVIDEND
DECLARED |
||||||
First quarter |
$ | 22.05 | $ | 20.75 | $ | 0.11 | |||
Second quarter |
$ | 25.26 | $ | 20.85 | $ | 0.11 | |||
Third quarter |
$ | 22.55 | $ | 21.60 | $ | 0.12 | |||
Fourth quarter |
$ | 24.37 | $ | 21.75 | $ | 0.12 | |||
2005 HIGH - LOW QUOTATIONS |
|||||||||
First quarter |
$ | 22.86 | $ | 20.00 | $ | 0.10 | |||
Second quarter |
$ | 21.18 | $ | 17.98 | $ | 0.10 | |||
Third quarter |
$ | 22.06 | $ | 19.05 | $ | 0.11 | |||
Fourth quarter |
$ | 22.00 | $ | 20.75 | $ | 0.11 |
The approximate number of holders of record of common stock as of December 31, 2006 was 321.
The shares are traded on the NASDAQ Global Market System under the symbol BMTC.
The price information was obtained from NASDAQ, IDC.
40
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES,
PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKET
Assumes $100 invested on January 1, 2001.
Assumes dividend reinvested through fiscal year ending December 29, 2006.
41
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Bryn Mawr Bank Corporation:
We consent to the incorporation by reference in the Registration Statements on Form S-8 of Bryn Mawr Bank Corporation (the Corporation) of our report dated March 9, 2007, with respect to the consolidated balance sheets of Bryn Mawr Bank Corporation as of December 31, 2006 and 2005, and the related consolidated statements of income, cash flows, changes in shareholders equity, and comprehensive income for each of the years in the three-year period ended December 31, 2006, which report appears in the December 31, 2006 annual report incorporated by reference in the Form 10-K of Bryn Mawr Bank Corporation. We also consent to the incorporation by reference in the Registration Statements on Form S-8 of the Corporation of our report dated March 9, 2007, with respect to managements assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which report is included in the December 31, 2006 Form 10-K of Bryn Mawr Bank Corporation.
Our report dated March 9, 2007, on the consolidated balance sheets of the Corporation as of December 31, 2006 and 2005, and the related consolidated statements of income, cash flows, changes in shareholders equity, and comprehensive income for each of the years in the three-year period ended December 31, 2006, refers to the Corporations adoption of Statement of Financial Accounting Standards No. 123R, Share Based Payment, effective January 1, 2006, Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, in 2006.
(signed) KPMG LLP
Philadelphia, Pennsylvania
March 13, 2007
Exhibit 31.1
CERTIFICATIONS
I, Frederick C. Peters II, Chief Executive Officer, certify that:
1. | I have reviewed this Year End 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 registrants other certifying officers 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 we 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
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 registrants 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 registrants internal control over financial reporting. |
Date: March 9, 2007 | /s/ F REDERICK C. P ETERS II | |||
Frederick C. Peters II, Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, J. Duncan Smith, CPA, Treasurer and Chief Financial Officer, certify that:
1. | I have reviewed this Year End 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 registrants other certifying officers 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 we 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 the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
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 registrants 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 registrants internal control over financial reporting. |
Date: March 9, 2007 | /s/ J. D UNCAN S MITH , CPA | |||
J. Duncan Smith, Treasurer and Chief Financial Officer |
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Year End Report of Bryn Mawr Bank Corporation (the Company) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Frederick C. Peters II, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(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 result of operations of the Company.
/s/ F REDERICK C. P ETERS II |
Frederick C. Peters II Chief Executive Officer |
March 9, 2007
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Year End Report of Bryn Mawr Bank Corporation (the Company) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, J. Duncan Smith, CPA, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(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 result of operations of the Company.
/s/ J. D UNCAN S MITH |
J. Duncan Smith Treasurer and Chief Financial Officer |
March 9, 2007