Exhibit 10.20
BRYN MAWR BANK CORPORATION
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
FOR SELECT EXECUTIVES
TABLE OF CONTENTS
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PAGE
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ARTICLE I. PURPOSE
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ARTICLE II. DEFINITIONS
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ARTICLE III. ELIGIBILITY
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4
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ARTICLE IV. VESTING
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ARTICLE V. ACCRUED BENEFIT
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ARTICLE VI. ADDITIONAL STIPULATION ON BENEFITS
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ARTICLE VII. RETIREMENT BENEFITS
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ARTICLE VIII. ENTITLEMENT TO DEFERRED COMPENSATION
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ARTICLE IX. FUNDING OF DEFERRED COMPENSATION
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ARTICLE X. DESIGNATION OF BENEFICIARIES
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ARTICLE XI. ADMINISTRATION
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ARTICLE XII. SECTION 409A AMOUNTS
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ARTICLE XIII. AMENDMENT AND TERMINATION
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ARTICLE XIV. MISCELLANEOUS
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APPENDIX A Designation of Beneficiary Form
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APPENDIX B List of Eligible Executives
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APPENDIX C Pension Plan Benefit Formula
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ARTICLE I
PURPOSE
1.01 The Plan is an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management or highly- compensated employees. The Plan provides supplemental retirement income to Participants in excess of their employer-provided benefits under certain other plans and arrangements up to the
maximum benefit specified in the Plan. The Plan is also intended to meet the applicable requirements of IRC Section 409A and applicable Treasury regulations related to Section 409A.
ARTICLE II
DEFINITIONS
2.01 “Accrued Benefit” means the benefit described in Article V and Appendix C.
2.02 “Actuarial Equivalent” means the following: an amount or benefit is the “Actuarial Equivalent” of, or is “Actuarially
Equivalent” to, another amount or benefit as of a specified date, if the Actuarial Present Value as of the specified date of the first amount or benefit equals the Actuarial Present Value as of the specified date of the second amount or
benefit, when calculated using the same actuarial assumptions. Actuarial Equivalence under this Plan will be determined as of the Participant’s benefit starting date, and the resulting benefit will be determined as provided in the Pension Plan
expressed in the form of a single life annuity beginning on the Participant’s benefit starting date. Actuarial Equivalence for a single life annuity in this Plan will be determined as of the Beneficiary’s benefit starting date, and the
resulting benefit will be expressed in the form of a single life annuity beginning on the Beneficiary’s benefit starting date.
2.03
“Actuarial Present Value” means the value as of a specified date of an amount or a series of amounts due before or thereafter, where each amount is multiplied by the probability that the condition or conditions on which payment of the
amount is contingent will be satisfied, and where each amount so multiplied is then increased (if due before) or discounted (if due thereafter) according to an assumed rate of interest to reflect the time value of money. Unless the Plan specifies
otherwise, the mortality table and interest rate used to calculate the Actuarial Present Value of an amount or series of amounts will be the mortality table and interest rate in effect under Section 417(e)(3)(A) of the Code 90 days before the
Participant’s benefit starting date.
2.04 “Administrator” means the person or committee, appointed by the Board of
Directors, that shall be responsible for administering the Plan.
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2.05 “Affiliate” means a corporation of which the Corporation controls, directly or indirectly,
at least 50 percent of the total combined voting power of all classes of stock.
2.06
“
Applicable Guidance” means as the
context requires Code §§83, and 409A, Treas. Reg. §1.83, Treas. Reg. §§1.409A-1 through -6, or other written Treasury or IRS guidance regarding or affecting Code §§83, 409A including, as applicable, any Code
§409A guidance in effect prior to January 1, 2008.
2.07 “Bank” means Bryn Mawr Trust Company and its successor
organizations, if any.
2.08 “Beneficiary” means the surviving spouse or other person, persons or trust designated by a
Participant as direct or contingent beneficiary to receive the amounts, if any, payable under the Plan upon his or her death, pursuant to Article X, below. If the Participant has not effectively designated his or her spouse or other designee, the
Participant’s estate shall be the default beneficiary.
2.09 “Board of Directors” means the Board of Directors of the
Company.
2.10 “Cause” means, a Participant’s conviction of, plea of guilty to, or plea of nolo contendere or no
contest to a felony criminal charge relating to his or her actions or omissions in connection with his or her service or duties to the Company, the Bank, or an Affiliate of either.
2.11 “Change of Control” means any one or more of the following, with respect to the Company or the Bank:
(1) any “persons” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act in effect on the date first written above), other than
Company or Bank or any “person” who on the date hereof is a director of officer of Company or Bank, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
Company or Bank representing 25% or more of the combined voting power of Company’s or Bank’s then outstanding securities; or
(2)
during any period of two consecutive calendar quarters, individuals who at the beginning of such period constitute the Board of Directors of Company or Bank cease for any reason to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period.
2.12 “Code” means the Internal Revenue Code of 1986, as amended.
2.13 “Company” means Bryn Mawr Bank Corporation.
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2.14
“
Disability” means a medically-determinable disability of a permanent nature as a
result of which a Participant is entitled to receive and is receiving disability benefits under the Social Security Act.
2.15
“
Employee” means a person providing services to the Employer as a common law employee (and not as a Contractor) as described in Treas. Reg. §1.409A-1(f)(1) and who, for any Taxable Year of the Employee, is on the cash receipts
and disbursements method of accounting for Federal income tax purposes.
2.16 “Effective Date” of this Plan means April 1,
2008.
2.17 “Normal Retirement Date” means the first day of the month
coincident with or next following a Participant’s 65
th
birthday.
2.18 “Participant” means an individual who has met the eligibility requirements set forth in Article III.
2.19 “Participating Employer” means the Company and each Affiliate that has elected to participate in the Plan.
2.20 “Pension Plan” means the Bryn Mawr Bank Corporation Pension Plan, as amended and as frozen for new service for accrued benefits and for salary increases effective March 31, 2008 as the same may be
amended from time to time. If the Pension Plan is terminated in the future, its operating rules as referenced herein and used to calculate Accrued Benefits shall still be in effect for purposes of the operation of this Plan, unless also amended in
the future.
2.21 “Plan” means this Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, as
set forth herein and as the same may be amended from time to time.
2.22 “Separation from Service” means the occurrence of an
event or events with regard to a Participant’s employment that results in a “separation from service” with a Participating Employer within the meaning of Section 409A of the Code. For this purpose, a “Separation from
Service” is deemed to occur on the date that the Company and the Participant reasonably anticipate that the level of bona fide services the Participant would perform after the date would permanently decrease to less than 50% of the average
level of bona fide services provided in the immediately preceding 36 months.
2.23 “Top Executives” means the Participants as
listed in Appendix B, as the same may be supplemented from time to time.
2.24 “Trustee” means the individual or corporation
appointed by the Company to serve as trustee of a trust established by the Company pursuant to Article VI, below.
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2.25 “Years of Vesting Service” shall be determined in the same manner as under the Pension
Plan.
ARTIICLE III
ELIGIBILITY
3.01 Eligible Employees. Plan Participants shall be Top Executives as defined above and as specified in Appendix B.
ARTICLE IV
VESTING
4.01 For purposes of this Plan, the Participants as set forth in Appendix B shall have a vested interest in their Accrued Benefits in this Plan only if
they complete five Years of Vesting Service.
4.02 Notwithstanding Article 4.01 above, a Participant’s vested interest upon and at all
times following a Change of Control while he or she is employed by a Participating Employer shall be one hundred percent (100%).
ARTICLE V
ACCRUED BENEFIT
5.01. Method
of Determining Accrued Benefit. An individual Participant’s Accrued Benefit shall be determined as provided under this Article, and elsewhere in the Plan. The Participant’s Accrued Benefit under the Plan shall be a monthly benefit equal to
the amount set forth in Section 5.02 below subject to the required reductions as set forth in Article 5.03 below, payable in the form of a single life annuity beginning on his Normal Retirement Date, and reduced for early commencement in
accordance with the terms of the Pension Plan.
5.02 Accrued Benefit Formula. The annual benefit to which a Participant or his Beneficiary
shall be entitled under the Plan is the excess, if any, of:
(a) the annual benefit that would have been paid to such
Participant or his Beneficiary under the Pension Plan, if the Participant’s benefit under the Pension Plan were calculated without regard to the freeze in benefits thereunder as of March 31, 2008, and –
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(1)
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without regard to the limitations of Code Section 415 on maximum annual benefits;
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(2)
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without regard to the limitations of Code Section 401(a)(17) on maximum annual compensation; and
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(3)
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by including with the term “Compensation” (as defined in the Pension Plan) bonus amounts paid with respect to 1997 or later years and which were deferred to the Deferred
Bonus Plan for Executives of Bryn Mawr Bank Corporation; over
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(b) the annual benefit that is actually paid to
such Participant or his Beneficiary under the Pension Plan (or had been paid if the Pension Plan is terminated prior to commencement of benefits under this Plan) and accrued up to March 31, 2008 as per Amendment Number 2 to the Pension Plan.
The terms of the Pension Plan shall control for purposes of determining the annual benefit described in paragraph
(a) above, except as noted therein. The pertinent terms of the Pension Plan include, but are not limited to, those set forth in Appendix C hereto.
5.03. Required Reductions. The monthly installments otherwise included in a Participant’s Accrued Benefit will be reduced as follows:
(a) First, if payments commence before age 65, the Normal Retirement Date under the Pension Plan, his Accrued Benefit will be reduced in
accordance with the reduction factors set forth in the Pension Plan.
(b) Second, each monthly installment will be reduced
by the monthly amount of a benefit that is the Actuarial Equivalent of all employer-provided benefits the Participant has received, is receiving, or is expected to receive under any qualified or nonqualified defined benefit plan (other than the
Pension Plan or this Plan) maintained by the Company or any entity that would be aggregated with the Company under Section 414(b) or (c) of the Code, including but not limited to, the Bryn Mawr Corporation Supplemental Employee Retirement
Plan (“SERP I”). The amount of the Participant’s employer-provided benefits under other defined benefit plans will be determined as of the Participant’s benefit starting date. Employer-provided benefits provided to an alternate
payee under a domestic relations order will be treated as if they were provided to the Participant.
(c) Third, each monthly
installment will be further reduced by the monthly amount of a benefit that is the Actuarial Equivalent of the employer-provided, fully-vested 3% discretionary contributions to the Bryn Mawr Bank Corporation 401(k) Plan account balances accumulated
on the Participant’s behalf since the contributions were initiated by the Company after March 31, 2008, or under any other defined contribution plan maintained by the Company or any entity that would be
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aggregated with the Company under Section 414(b) or (c) of the Code. Employer-provided account balances do not include any portion of an account
balance attributable to salary reduction contributions made by the Participant, regardless of whether the contributions are made on a pre-tax or an after-tax basis. Account balances will be determined as of 30 days before the Participant’s
benefit starting date. Distributions previously made from the Participant’s accounts will be taken into account, plus interest from the date of distribution. Employer-provided account balances provided to an alternate payee under a domestic
relations order will be treated as if they were provided to the Participant.
(d) Fourth, after the preceding reductions
have been made, the resulting monthly installment will be further reduced by multiplying it by the Participant’s Vested Percentage. The Vested Percentage is 100 percent in the case of a Participant with 5 or more Years of Vesting Service, and
zero percent in the case of a Participant with less than 5 Years of Vesting Service as determined under the Pension Plan (except in the case of a Change of Control as set forth in Section 4.02).
ARTICLE VI
ADDITIONAL STIPULATION ON BENEFITS
6.01 Payment of Benefits. The
method
of a Participant’s benefit payments (or those of his Beneficiary) under the Plan shall in
general be identical to the manner in which such Participant’s benefits are provided and paid under the Pension Plan as of March 31, 2008 with the exceptions of Article 6.03 below and other related Section 409A considerations. All
payments hereunder shall end at the same time all payments to the Participant and his Beneficiary under the Pension Plan end.
6.02
Cash-Out. Notwithstanding any other provisions of this document, if the present value of the Participant’s benefits under this Plan, as calculated in the same manner as under the Pension Plan, is less than $5,000, the Administrator shall cause
such benefits to be paid to the Participant in a cash lump sum as soon as administratively feasible following the date the Participant becomes entitled to a distribution under this Plan
6.03 Payment Delay for all Participants. Notwithstanding anything to the contrary in the Plan or in a payment election, the Plan shall not make payment,
based on a Separation from Service to a Participant earlier than 6 months following such Separation from Service. Payments that otherwise would be payable during the foregoing 6-month period will be accumulated without interest and payment delayed
until the first business day of the seventh month that is after the 6-month period (or if earlier, within 15 days after the appointment of the personal representative or executor of the Participant’s estate following the Participant’s
death). This Article does not apply to payments made on account of a domestic relations order, payments made because of a conflict of interest, or payment of employment taxes, all as described in Treas. Reg. 1.409A-3(i)(2)(i).
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6.04 Default Provision. Subject to the provisions of this section and Section 5 above, a
Participant’s Accrued Benefit shall begin to be paid no later than 60 days following the close of the Plan Year in which occurs the later of his (a) Normal Retirement Date, or (b) actual Separation from Service.
ARTICLE VII
RETIREMENT BENEFITS
7.01. Normal Retirement Benefit. A Participant who retires from service with a Participating Employer on his Normal Retirement Date is entitled to a
Normal Retirement Benefit. Unless a Participant elects otherwise as provided for below, he will receive his Normal Retirement Benefit in the form of a single life annuity beginning on his Normal Retirement Date, subject to the delay required by
Section 6.03 above. The monthly installments made under his Normal Retirement Benefit will be the same as the monthly installments under his Accrued Benefit.
7.02 Late Retirement Benefit. A Participant who retires from service with a Participating Employer after his Normal Retirement Date is entitled to a Late Retirement Benefit based on his Years of Service for Benefit
Accrual and Average Annual Compensation up to his Late Retirement Date. Unless he elects otherwise, he will receive his Late Retirement Benefit in the form of a single life annuity beginning on the first day of the month after he retires from
service, subject to the delay prescribed by Section 6.03 above. The monthly installments made under his Late Retirement Benefit will be the same as the monthly installments under his Accrued Benefit, beginning with the monthly installment for
the month that includes his Late Retirement Date. However, he will not receive any monthly installments that would have been made if he had retired before his Late Retirement Date, and no adjustment will be made in his Late Retirement Benefit to
reflect the loss of these installments.
7.03 Early Retirement Benefit. A Participant who retires from service with the Company on or after
age 55, but before his Normal Retirement Date is entitled to an Early Retirement Benefit if he or she has at least 15 Years of Vesting Service based on his Years of Service for Benefit Accrual and Average Annual Compensation up to his Early
Retirement Date. He will receive his Early Retirement Benefit in the form of a single life annuity beginning on the first day of the month after the date he retires from service with the Company, subject to the delay set forth in Section 6.03
above. The monthly installments made under his Early Retirement Benefit will be the same as the monthly installments under his Accrued Benefit. Actuarial reductions for a benefit commencing before Normal Retirement Date shall be applied by the
Actuary similar to those set forth in Section 3.2 of the Pension Plan.
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7.04 Vested Retirement Benefit. A Participant whose employment with the Company terminates for any reason
before completing 15 years of Vesting Service and attaining age 55 but following a Change of Control is entitled to a Vested Retirement Benefit. He will receive his Vested Retirement Benefit in the form of a single life annuity after the later of
the date he terminates employment or the date he attains age 55, subject to the delay set forth in Section 6.03 above. The monthly installments made under his Vested Retirement Benefit will be the same as the monthly installments under his
Accrued Benefit.
7.05 Disability Retirement Benefit. A Participant who becomes Disabled before his employment with the Company terminates
and before he reaches Normal Retirement Date satisfies the requirements for a Retirement Benefit under this Article if he or she has reached age 55 and has at least 15 years of service. In that case, the Participant would be entitled to a Disability
Retirement Benefit that is computed based on the number of Years of Service for Benefit Accrual that he would have earned had he continued in employment to his Normal Retirement Date, assuming he would have been credited with 1,000 Hours of Service
for each Plan Year to his Normal Retirement Date, and assuming that his actual Compensation in the last full calendar year of active participation before the date of his Disability remains level to his Normal Retirement Date. If a disabled
Participant ceases to be disabled before his Normal Retirement Date, he shall be reinstated as an active Participant if he is reemployed with a Participating Employer or he shall be considered a terminated vested Participant with his Accrued Benefit
determined as of the date he ceases to be disabled. Under the circumstances set forth above, he will receive his Disability Retirement Benefit in the form of a single life annuity beginning on his Normal Retirement Date. The monthly installments
made under his Disability Retirement Benefit will be the same as the monthly installments under his Accrued Benefit.
7.06 Joint &
Survivor Annuity Option and other payment choices. A Participant may elect to receive his Retirement Benefit in the form of one of the other optional forms of benefit payment as set forth in the Pension Plan as follows:
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a)
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Period certain annuity for 120 monthly payments;
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b)
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Joint and Survivor Annuity at 60% or 100% survivor levels; or
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c)
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Social Security Bridge before age 62 as provided in the Pension Plan, but solely with respect to the portion of an Employee’s Accrued Benefit earned up to December 31,
1991.
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These optional forms of benefit payment may begin on the first day of any month on which the Participant is entitled to begin
receiving his Retirement Benefit and will be the Actuarial Equivalent of the Retirement Benefit that would have been payable to him in the form of a single life annuity beginning on that day. Any election under this Article must be made before the
Participant’s benefit starting date and may not be changed or revoked after that date. All optional forms of benefit in the Pension Plan shall carry over and shall be available to Participants in this Plan, including the pre-retirement survivor
annuity option. For example, the surviving spouse of a participant will also receive post-freeze accruals (following the Pension Plan freeze) under the Plan.
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ARTICLE VIII
ENTITLEMENT TO DEFERRED COMPENSATION
8.01 All amounts payable pursuant to this Plan shall be subject to
all applicable Federal, state and local tax withholding requirements, and other charges and assessments imposed by law.
8.02
Notwithstanding the foregoing provisions of this Article VIII, or the vesting rules of Article IV, if the Participant’s employment with the Company or the Bank is terminated for Cause as defined in this Plan prior to the commencement of
payments, he shall forfeit his vested interest in the Account, and no payments to him or his Beneficiary shall be made under this Plan. If a Participant’s employment with the Company or the Bank is terminated for Cause after the commencement of
payments, he shall forfeit his remaining interest in the Account, and no further payments to him or his Beneficiary shall be made under this Plan. A Participant shall have the normal claims procedure rights and rights of appeal as set forth under
Article XI.
8.03 If as a result of a Change of Control and either subsequent actual or constructive termination or a dispute with new
management as to the amount or entitlement of his/her Accrued Benefit, the provisions of the Participant’s Change in Control agreement as to “Settlement of All Disputes” shall be operative in such case. If a Participant needs to
obtain legal assistance to defend his or her interests in this Plan, the Bank shall reimburse the Participant for all reasonable and necessary legal expenses incurred as a result of defending his interests. If there is a dispute as to what is
reasonable and necessary, the above shall be submitted to binding arbitration under the rules of the American Arbitration Association (AAA).
ARTICLE IX
FUNDING OF DEFERRED COMPENSATION
9.01 Except as provided by the terms of the trust established pursuant to Article 9.02, below, neither the Participants nor their Beneficiaries shall have any right, title, or interest in or to any investments which
the Company may make to aid it in meeting its obligations hereunder. Such investments, whether held in trust or otherwise, shall be unrestricted corporate assets.
9.02 The Company shall establish a trust with the Bank’s Wealth Management Division as Trustee for the purpose of funding the Deferred Compensation provided hereunder. The trust shall include such terms,
restrictions and limitations as are necessary to ensure that it will be treated as a “grantor trust” within the meaning of subpart E, part I, subchapter J, chapter I, subtitle A of the Code, with respect to the Company. Moreover, the trust
shall be evidenced by an agreement substantially similar to the form of
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the model trust agreement set forth in Internal Revenue Service Revenue Procedure 92-64, including any modification to such Revenue Procedure, and include
provisions required in such model trust agreement that all assets of the trust shall be subject to the claims of creditors of the Company in the event of its insolvency. Any assets of the trust remaining after the obligations to the Participants and
their Beneficiaries have been satisfied shall be paid to the Company.
9.03 Notwithstanding any provision of the trust to the contrary, all
expenses of the trust, and any taxes that may be levied against the trust, shall be paid by the Company, other than taxes required to be withheld from payments of trust assets to the Participants or their Beneficiaries. In the event that any trust
assets are used to pay expenses or taxes of the trust, the Company shall reimburse the trust within five business days of such payment.
ARTICLE X
DESIGNATION OF BENEFICIARIES
10.01 If a Benefit payment election other than a single life annuity is filed with the Administrator by a Participant, that Participant shall file with the Company a written designation in the form attached hereto as
Appendix A of one or more persons as Beneficiaries to receive the amount, if any, payable under the Plan upon their deaths. The Participant 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 Participant’s death.
10.02 If no such Beneficiary designation is in effect at the time of a Participant ‘s death, or if no designated Beneficiary survives
the Participant, the payment of the amount, if any, payable under the Plan upon his or her death shall be made to his or her surviving spouse; if no surviving spouse, to the Participant’s surviving children equally; if no surviving children, to
the Participant’s surviving grandchildren equally; if no surviving grandchildren, to the Participant’s estate.
ARTICLE XI
ADMINISTRATION
11.01 The
Administrator shall have the discretionary authority to determine eligibility for payments under the Plan and to construe, interpret and administer the Plan, and shall do so in a manner that is consistent with the requirements and limitations of
Section 409A of the Code. The Administrator will administer and interpret the Plan, including making a determination of the vested accrued benefit due any Participant or Beneficiary under the Plan. As a condition of receiving any Plan benefit
to which a Participant or Beneficiary otherwise may be entitled, a Participant or Beneficiary will provide such information and will perform such other
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acts as the Administrator reasonably may request. The Administrator may retain agents to assist in the administration of the Plan and may delegate to agents
such duties as it sees fit. The decision of the Administrator or its designee concerning the administration of the Plan is final and is binding upon all persons having any interest in the Plan. The Administrator will indemnify, defend and hold
harmless any employee designated by the Administrator to assist in the administration of the Plan from any and all loss, damage, claims, expense or liability with respect to this Plan (collectively, “claims”) except claims arising from the
intentional acts or gross negligence of the employee.
11.02 ERISA Claims Procedure. Because this Plan is established as a “top-hat
plan” within the meaning of DOL Reg. §2520.104-23, the following claims procedure under DOL Reg. §2560.503-1 applies. A Participant or Beneficiary may file with the Administrator a written claim for benefits, if the Participant or
Beneficiary disputes the Administrator’s determination regarding the Participant’s or Beneficiary’s Plan benefit. However, the Administrator will cause the Plan to pay only such benefits as the Administrator in its discretion
determines a Participant or Beneficiary is entitled to receive. The Administrator under this Article will provide a separate written document to affected Participants and Beneficiaries which explains the Plan’s claims procedure and which by
this reference is incorporated into the Plan.
11.03 A Participant or, in the event of the Participant’s death, the Executive’s
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 Administrator 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 and the time limits applicable thereto, and a statement of the claimant’s right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended.
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, in which case the Administrator
shall provide written notice of the extension to the claimant and the reasons therefore, and the date by which the Administrator expects to make its determination with respect to the claim. In no event shall such extension exceed 90 days.
11.04 In the event of a denial of a claim for benefits, the claimant or a duly authorized representative will be permitted to submit
issues and comments in writing to the Administrator and to submit documents, records and other information relating to the claim for benefits. The claimant or a duly authorized representative shall also be provided, upon request and free of charge,
reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits. 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 that takes into account all comments, documents, records and other information submitted by the claimant, without
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regard to whether such information was submitted or considered in the initial benefits determination; 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 Administrator in appropriate cases.
11.05 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. Notice of 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. The claimant or a duly authorized representative shall also be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other
information relevant to the claimant’s claim for benefits.
11.06 Costs and Expenses. Investment charges will be borne by the assets
of the Trust in general. The Company will pay the other costs, expenses and fees associated with the operation of the Plan, excluding those incurred by Participants or Beneficiaries. The Company will pay costs, expenses or fees charged by or
incurred by the Trustee only as provided in the Trust or other agreement between the Company and the Trustee. The next sentence shall be governed in general by the Section of the Participant’s Change of Control agreement that refers to
reimbursement of expenses incurred in defending his/her interests. As referenced earlier, if as a result of a Change of Control as referenced in Article 8.03 and the subsequent dispute as to amount or entitlement or actual or constructive
termination, a Participant needs to obtain legal assistance to defend his or her interests, the Bank shall reimburse the Participant for all necessary and reasonable legal expenses incurred as a result of defending his/her interests.
11.07 Reporting. The Company will report payment of deferred compensation for Participants in general on Form W-2.
ARTICLE XII
SECTION 409A AMOUNTS
12.01 409A Amounts. The terms of this Plan shall control as to any 409A Amount.
12.02 Possible Nonuniformity. The Company in its Plan amendments may specify such Plan terms as will apply to all Participants uniformly or as may apply
to a given Participant. Except where the Plan or Applicable Guidance require uniformity in order to comply with Code §409A, the Company need not provide the same Plan benefits or apply the same Plan terms and conditions to all Participants,
even as to Participants who are of similar pay, title and other status with a Participating Employer. The elections
12
the Company makes in its Plan apply uniformly to all Participants, except to the extent the Company adopts inconsistent provisions with respect to one or
more Participants in a separate attachment designated as “Exhibit A” and attached to the Plan. The Company may create a separate Exhibit A for one or more Participants, specifying such terms and conditions as are applicable to a given
Participant. The Company, in Exhibit A, may modify any Plan provision as to one or more Participants.
12.03 Plan’s purpose. The Plan
is intended to comply with, or otherwise be exempt from, Section 409A of the Code. The Plan shall be administered, interpreted and construed in a manner that does not result in the imposition of additional taxes or interest under
Section 409A of the Code.
12.04 Tax Effect. The Company does not guarantee any particular tax effect. The Company shall not be liable
for any payment that is made in accordance with the terms of the Plan but is determined to result in any additional tax, penalty, or interest under Section 409A of the Code, nor for reporting in good faith any payment made under this Plan an
amount includible in gross income under Section 409A of the Code. The Participant shall remain liable for all taxes, interest or penalties imposed under Section 409A of the Code.
ARTICLE XIII
AMENDMENT AND TERMINATION
13.01 The Company may amend the Plan at any time to the extent necessary to comply with any requirement or limitation set forth in Section 409A of
the Code or to add Participants by revising Appendix B hereto.
13.02 Termination. The Company may terminate, but is not required to
terminate and liquidate the Plan which includes the distribution of all Plan Accrued Benefits under either of the following circumstances, in either case in accordance with the applicable requirements under Code Section 409A and the Treasury
Regulations promulgated thereunder:
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(a)
|
The Company or other service recipient with respect to the Plan (within the meaning of Code Section 409A and the Treasury Regulations promulgated thereunder)
may terminate and liquidate the Plan by irrevocable action taken within 30 days preceding or the 12 months following a change in control event (as defined in Treas. Reg. Section 1.409A-3(i)(5)), provided that all agreements, methods, programs
and other arrangements sponsored by the service recipient immediately after the time of the change in control event with respect to which deferrals of compensation are treated as having been deferred under a single plan under Treas. Reg.
Section 1.409A-1(c)(2) are terminated and liquidated with respect to each participant thereunder that experienced the change in control event, so that under the terms of the termination and
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13
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|
liquidation all such participants are required to receive all amounts of compensation deferred under the terminated agreements, methods, programs and other
arrangements within 12 months of the date the service recipient irrevocably take all necessary steps to terminate and liquidate the agreements, methods, programs and other arrangements. For purposes of this paragraph (a), the applicable service
recipient with the discretion to liquidate and terminate the agreements, methods, programs and other arrangements is the service recipient that is primarily liable immediately after the transaction for the payment of the deferred compensation.
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(b)
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Dissolution/Bankruptcy. The Company may terminate and liquidate the Plan within 12 months following a corporate dissolution taxable under Code §331 or with approval of a
Bankruptcy court pursuant to 11 U.S.C. §503(b)(1)(A), provided that all Accrued Benefits are included in the Participants’ gross income in the latest of (or, if earlier, the taxable year in which the amount is actually or constructively
received): (i) the calendar year in which the Plan termination and liquidation occurs; (ii) the first calendar year in which the amounts no longer are subject to a substantial risk of forfeiture; or (iii) the first calendar year in
which the payment is administratively practicable.
|
13.03 Fair Construction. The Company, Participants and Beneficiaries
intend that this Plan in form and in operation comply with Code 409A, the regulations thereunder, and all other present and future Applicable Guidance. The Company and any other party with authority to interpret or administer the Plan will interpret
the Plan terms in a manner which is consistent with applicable law. However, as required under Treas. Reg. §1.409A-1(c)(1), the “interpretation” of the Plan does not permit the deletion of material terms which are expressly contrary
to Code §409A and the regulations thereunder and also does not permit the addition of missing terms necessary to comply therewith. Such deletions or additions may be accomplished only be means of a Plan amendment under this Article.
ARTICLE XIV
MISCELLANEOUS
14.01 Nothing contained in the Plan shall give the Participants the right to be retained in the employment of the Company or the Bank or affect the right
of either to dismiss any of the Participants. The adoption of the Plan shall not constitute a contract between the Company and the Participants.
14.02 If the Company shall find that any person to whom any amount is payable under the Plan is unable to care for his or her 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.
14
14.03 No assignment. No Participant or Beneficiary has the right to anticipate, alienate, assign, pledge,
encumber, sell, transfer, mortgage or otherwise in any manner convey in advance of actual receipt, the Participant’s Account. 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 Participants or Beneficiaries nor be subject in any manner to the debts or liabilities of
any person, and any attempt to do so alienate or subject any such amount, whether presently or thereafter payable, shall be void.
14.04
Securities or Other Laws. The Plan may delay payment to a Participant if the Employer reasonably anticipates that the payment will violate Federal securities law or other applicable law. The Plan will commence or cease payments at the earliest date
at which the Company reasonably anticipates that the payment will not cause a violation of such laws. For purposes of this Article, a violation of “other applicable law” does not include a payment which would cause inclusion of the payment
in the Participant’s gross income or which would subject the Participant to any Code penalty or other Code provision.
14.05
Withholding. The Company will withhold from any payment made under the Plan and from any amount taxable under Code §409A, all applicable taxes, and any and all other amounts required to be withheld under Applicable Guidance.
14.06 Participant Elections. A Participant’s payment election is not considered made for any purpose under the Plan until both: (i) the
Administrator approves the election; and (ii) the election has become irrevocable. A Participant’s payment election is always revocable until the Administrator accepts the election, which acceptance must occur within the 60 days of its
being presented to the Administrator.
14.07 Notice and Elections. Any notice given or election made under the Plan must be in writing and
must be delivered or mailed by certified mail, to the Company, the Trustee or to the Participant or Beneficiary as appropriate. The Company will prescribe the form of any Plan notice or election to be given to or made by Participants. Any notice or
election will be deemed given or made as of the date of delivery, or if given or made by certified mail, as of 3 business days after mailing.
14.08 Costs and Expenses. The Company will pay the other costs, expenses and fees associated with the operation of the Plan, excluding those incurred by Participants or Beneficiaries. The Company will pay costs, expenses or fees charged by
or incurred by the Trustee only as provided in the trust agreement or other agreement between the Company and the Trustee.
14.09
Reporting. The Company will report benefits hereunder for Participants on Form W-2 in accordance with Applicable Guidance.
15
14.10 It is the intention of the Company that the Plan shall be unfunded for Federal income tax purposes
and for purposes of the Employee Retirement Income Security Act of 1974, as amended.
14.11 All rights under this Plan shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania, except to the extent such laws are superseded by the laws of the United States.
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********************
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********************
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*******************
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IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its authorized officers as of this 8
th
day of
December, 2008.
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ATTEST:
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BRYN MAWR BANK CORPORATION
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/s/ Robert J Ricciardi
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By:
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/s/ Frederick C. Peters
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Secretary
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16
BRYN MAWR BANK CORPORATION
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN FOR SELECT EXECUTIVES
APPENDIX A
Ÿ
DESIGNATION OF BENEFICIARY
Pursuant to the above-referenced Supplemental Employee Retirement Plan for Select Executives (“Plan”), I,
, hereby designate the
following person(s) or entity(ies) as beneficiary(ies) of any and all amounts which shall be payable pursuant to the Plan by reason of or following my death and revoke all such prior beneficiary designations:
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Primary Beneficiary I
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Primary Beneficiary II
(optional)
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Name:
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Name:
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Address:
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Address:
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SSN/EIN:
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SSN/EIN:
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Relationship:
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Relationship:
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Percentage:
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Percentage:
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Contingent Beneficiary I
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Contingent Beneficiary II
(optional)
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Name:
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Name:
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Address:
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Address:
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SSN/EIN:
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SSN/EIN:
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Relationship:
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Relationship:
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Percentage:
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Percentage:
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•
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|
This form should be revised if more than two Primary Beneficiaries or more than two Contingent Beneficiaries are to be designated.
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17
BRYN MAWR BANK CORPORATION
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN FOR SELECT EXECUTIVES
APPENDIX B—LIST OF ELIGIBLE EXECUTIVES
The following individuals shall be eligible to participate in the SERP effective April 1, 2008:
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•
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Martin F. Gallagher, Jr.
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•
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Geoffrey L. Halberstadt
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18
BRYN MAWR BANK CORPORATION
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN FOR SELECT EXECUTIVES
APPENDIX C—PENSION PLAN BENEFIT PLAN
FORMULA
The terms of the Pension Plan applicable for purposes of determining a Participant’s Accrued Benefit under this Plan
include, but are not limited to, the following.
(a) A Participant’s “Normal Retirement Benefit” will be determined based on
a retirement benefit formula equal to the sum of a Participant’s “Past Service Benefit” and a Participant’s “Future Service Benefit.” A Participant’s Past Service Benefit is the greater of:
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•
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A Participant’s Accrued Benefit as of December 31, 1988 determined under the terms of the Pension Plan on that date, with Compensation for each Plan Year
limited to $200,000; or
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•
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|
1.3 % of a Participant’s Average Annual Compensation, multiplied by a Participant’s Years of Service for Benefit Accrual before 1989 (with no limit
on service); plus 0.5% of Average Annual Compensation in excess of Covered Compensation, multiplied by a Participant’s Years of Service for Benefit Accrual before 1989 (with a maximum of 35 such years minus the number of a Participant’s
Years of Service for Benefit Accrual used in determining the Past Service Benefit).
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A Participant’s Future Service Benefit is:
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•
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|
1.3 % of a Participant’s Average Annual Compensation, multiplied by a Participant’s Years of Service for Benefit Accrual after 1988 (with no limit on
service); plus 0.5% of Average Annual Compensation in excess of Covered Compensation, multiplied by a Participant’s Years of Service for Benefit Accrual after 1988 (with a maximum of 35 such years minus the number of a Participant’s Years
of Service for Benefit Accrual used in determining the Past Service Benefit).
|
(b) A Participant’s “Average
Annual Compensation” is the average annual Compensation for the five consecutive calendar years during the 10 full consecutive years of active participation ending before or with the earliest of the Participant’s retirement date, death, or
other termination of employment, as applicable, for which the average is the highest. If the Participant has received Compensation from the Employer for fewer than five calendar years prior to the event that causes a benefit to be payable under the
Pension Plan, his Average Annual Compensation shall be determined based on his total calendar years of employment as of the date of his severance from service. Calendar years for which a Participant does not receive any credit for a Year of Service
for Benefit Accrual shall be disregarded in determining Average Annual Compensation.
19
(c) “Compensation” means all amounts that are treated as wages for Federal income tax
withholding under Section 3401(a) of the Code (determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed), plus amounts that would be paid to
the Employee during the year but for Employee’s election under a cash or deferred arrangement described in Section 401(k) of the Code or a cafeteria plan described in Section 125 of the Code, or, for Plan Years beginning after
December 31, 2000, pursuant to a salary reduction agreement under Section 132(f)(4) of the Code. Except as expressly provided in the preceding sentence, however, “Compensation” shall not include the compensatory portion of the
exercise of any stock option or stock appreciation right, severance pay, the compensatory portion of any life insurance program maintained by the Employer, contributions by the Employer to the Pension Plan or any other plan or plans for the benefit
of its employees, fringe benefits, or amounts identified by the Employer as expense allowances or reimbursements regardless of whether such amounts are treated as wages under the Code. Compensation shall also not include bonuses paid (and not
deferred under a nonqualified deferred compensation plan) before 1988 and overtime pay paid before 1989.
20
Exhibit 13.1
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, 2008
BRYN MAWR BANK CORPORATION
Our Mission
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•
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To operate the Corporation and its subsidiaries in a sound and ethical manner.
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•
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To provide our shareholders with a return on their investment, superior to comparative bank stock indices.
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•
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To provide the highest quality products and the finest service to our clients.
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•
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To be an active and contributing member of the communities we serve.
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•
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To provide a working environment for our employees that is supportive, challenging, positive and fair.
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Our Value Proposition
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•
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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.
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•
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All clients have access to senior management, including the President.
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•
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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.
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Our Core Strategies
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•
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Concentrate on our four competencies — Wealth and Private Banking, Business Banking, “High Touch” Retail Banking, and Mortgage Banking.
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•
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Expand the Bank’s geographic footprint.
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•
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Increase loans and deposits 8-12% per year. Maximize our net interest margin.
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•
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Maintain our obsession with client service. Constant emphasis and monitoring by all levels of management.
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•
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Build an aggressive sales culture. Continue to develop incentive compensation programs that emphasize new business development and client retention.
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•
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Maintain a close control on expenses.
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ANNUAL
MEETING
The Annual Meeting of Shareholders of Bryn Mawr Bank Corporation will be held at Saint Davids Golf Club, 845 Radnor Street Road, Wayne, PA 19087,
on Wednesday, April 22, 2009, at 9:00 a.m.
STOCK LISTING
Bryn Mawr Bank Corporation common stock is traded over-the-counter and is listed on the NASDAQ Global Market System under the symbol BMTC.
FORM
10-K
A copy of the Corporation’s Form 10-K, including financial statement schedules as filed with the Securities and Exchange Commission, is available
on our website www.bmtc.com or upon written request to Robert J. Ricciardi, Secretary, Bryn Mawr Bank Corporation, 801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010, or via e-mail to bricciardi@bmtc.com.
EQUAL EMPLOYMENT OPPORTUNITY
The Corporation continues its commitment to
equal opportunity employment and does not discriminate against minorities or women with respect to recruitment, hiring, training, or promotion. It is the policy of the Corporation to comply voluntarily with the practices of Affirmative Action.
Pictured on our cover is our new West Chester Regional Banking Center.
1
2008 ANNUAL REPORT
Letter to Shareholders
DEAR FELLOW SHAREHOLDERS,
The
financial crises of 2008 affected most every banking institution in the nation, including Bryn Mawr Trust. Fortunately, while our earnings were down from the previous year, we still made a respectable profit and continued to grow and position the
Bank for the future.
Let me first touch on some of our accomplishments for the year.
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•
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In July we acquired Lau Associates LLC, a highly-sophisticated investment advisory firm and multi-family office in Wilmington, Delaware with over half a billion
dollars of assets under management and supervision. Judy Lau, founder and CEO of Lau Associates, is a dynamic and skilled leader who has attracted wealthy families as clients from up and down the east coast.
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•
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We opened a large regional retail and business banking office in West Chester, PA. This facility will act as the focal point for our strategy of expanding into
growing Chester County. This now gives us three branches in that County, including Paoli and Exton.
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•
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Our loan portfolio grew to almost $900 million, a 12% increase over 2007. We remain the premier business, private banking, and consumer lending financial
institution in the Philadelphia area.
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•
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Regulatory capital levels at December 31, 2008 continue to exceed the regulatory minimum for “well capitalized” at both the Bank and Corporate level.
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•
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During the third quarter, we received a trust charter from the state of Delaware to open The Bryn Mawr Trust Company of Delaware. We have office space in Wilmington
and have already begun to sign-up new clients attracted by that state’s special trust laws, sometimes know as the “Delaware Advantage”. Serving as Chairman and President of this important new initiative is Matt Waschull.
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Now for the issues in 2008 that affected our financial performance.
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•
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|
Sharply falling interest rates resulted in a contraction of our net interest margin, as we were not able to drop deposit rates (due largely to somewhat irrational
deposit pricing pressure from large, troubled banks such as Wachovia and Citibank) as quickly as loan rates fell.
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|
•
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|
During the fourth quarter we were required to book an approximate $640,000 impairment charge of our “mortgage servicing rights” portfolio. This non-cash
expense was a result of the fast decline in residential mortgage rates. There is a good chance, however, that we may recoup some of this charge in future quarters.
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•
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|
The performance of our small-ticket equipment leasing company was disappointing, with charge-offs much higher than planned. With a nationwide market, the leasing
company experienced the difficult economic conditions that, in many parts of the country, are much more severe than in the Philadelphia area. Changes in credit standards, types of equipment we will finance, and geography have been implemented and we
look forward to much better performance in 2009.
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|
•
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The acute decline in the stock market seriously impacted the revenue in our Wealth Management business, where much of what we do is priced as a percentage of assets
under management and supervision. We cut expenses in this area, but it was not enough to offset the concurrent loss of revenue.
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2
2008 ANNUAL REPORT
I’d like to share with you our primary strategies for 2009.
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•
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We will work to improve our net interest income margin by holding the line on any decreases in loan pricing, while at the same time taking advantage of lower rates
to improve our funding costs, both on deposits and on wholesale funding.
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•
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We will continue to emphasize strong credit quality. Except for our leasing portfolio, which only represents about 6% of total loans, our credit quality remains in
very good shape.
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•
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During the latter part of 2008 we embarked on an overhead control program aimed at reducing headcount and any non-essential expenses. This program continues into
2009.
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|
•
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We see the turmoil in the financial marketplace as a great opportunity to attract new clients to the Bank. We have already seen success in this area as there has
been a “flight to quality” away from the aforementioned troubled financial institutions.
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|
•
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And lastly, we will concentrate on our four main core competencies — business banking, wealth and private banking services, “high touch” retail
banking, and mortgage banking.
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The Directors, senior management, and I all appreciate your strong support over this past year. I can
assure you that Bryn Mawr Trust is well-positioned for future growth and increased profitability. As always, should you have any comments or questions, please call me on my direct line at
610-581-4800
or at my e-mail address
tpeters@bmtc.com
.
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Sincerely,
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Ted Peters
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Chairman and Chief Executive Officer
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3
2008 ANNUAL REPORT
Financial Highlights
CONSOLIDATED FINANCIAL HIGHLIGHTS
dollars in thousands, except per share data
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2008
|
|
|
2007
|
|
|
CHANGE
|
|
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FOR THE YEAR
|
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|
|
|
|
|
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|
|
|
|
|
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Net interest income
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|
$
|
37,138
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|
|
$
|
34,242
|
|
|
$
|
2,896
|
|
|
8.5
|
%
|
|
Net interest income after loan and lease loss provision
|
|
|
31,542
|
|
|
|
33,351
|
|
|
|
(1,809
|
)
|
|
-5.4
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%
|
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Non-interest income
|
|
|
21,472
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|
|
|
21,781
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|
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(309
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)
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|
-1.4
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%
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Non-interest expenses
|
|
|
38,676
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|
|
|
34,959
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|
|
|
3,717
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|
|
10.6
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%
|
|
Income taxes
|
|
|
5,013
|
|
|
|
6,573
|
|
|
|
(1,560
|
)
|
|
-23.7
|
%
|
|
Net income
|
|
|
9,325
|
|
|
|
13,600
|
|
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|
(4,275
|
)
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|
-31.4
|
%
|
|
AT YEAR-END
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|
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|
|
|
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Total assets
|
|
$
|
1,151,346
|
|
|
$
|
1,002,096
|
|
|
$
|
149,250
|
|
|
14.9
|
%
|
|
Total portfolio loans and leases
|
|
|
899,577
|
|
|
|
802,925
|
|
|
|
96,652
|
|
|
12.0
|
%
|
|
Total deposits
|
|
|
869,490
|
|
|
|
849,528
|
|
|
|
19,962
|
|
|
2.3
|
%
|
|
Shareholders’ equity
|
|
|
92,413
|
|
|
|
90,351
|
|
|
|
2,062
|
|
|
2.3
|
%
|
|
Wealth assets under management, administration and supervision
|
|
|
2,146,399
|
|
|
|
2,277,091
|
|
|
|
(130,692
|
)
|
|
-5.7
|
%
|
|
PER COMMON SHARE
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
Basic earnings per common share
|
|
$
|
1.09
|
|
|
$
|
1.59
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|
|
$
|
(0.50
|
)
|
|
-31.4
|
%
|
|
Diluted earnings per common share
|
|
|
1.08
|
|
|
|
1.58
|
|
|
|
(0.50
|
)
|
|
-31.6
|
%
|
|
Dividends declared
|
|
|
0.54
|
|
|
|
0.50
|
|
|
|
0.04
|
|
|
8.0
|
%
|
|
Book value
|
|
|
10.76
|
|
|
|
10.60
|
|
|
|
0.16
|
|
|
1.5
|
%
|
|
Tangible book value
|
|
|
9.55
|
|
|
|
10.60
|
|
|
|
(1.05
|
)
|
|
-9.9
|
%
|
|
Closing price
|
|
|
20.10
|
|
|
|
22.93
|
|
|
|
(2.83
|
)
|
|
-12.3
|
%
|
|
SELECTED RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.89
|
%
|
|
|
1.59
|
%
|
|
|
|
|
|
|
|
|
Return on average shareholders’ equity
|
|
|
10.01
|
%
|
|
|
15.87
|
%
|
|
|
|
|
|
|
|
|
Tax equivalent net interest margin
|
|
|
3.84
|
%
|
|
|
4.37
|
%
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
65.99
|
%
|
|
|
62.40
|
%
|
|
|
|
|
|
|
|
4
2008 ANNUAL REPORT
|
|
|
|
|
Year in Review
|
|
|
The entire team worked very hard and we accomplished a great deal in 2008. We got off to a great start and built
momentum throughout the year. We are pleased to share with you some of our most significant accomplishments.
Left to right: Judith W. Lau, CFP
®
, President, Lau Associates LLC and Frederick C. “Ted” Peters II, Chairman, President and Chief Executive Officer, Bryn Mawr Bank Corporation
EXPANDING THE BRYN MAWR TRUST FOOTPRINT
We began the second half of 2008 on
a very positive note announcing the acquisition of Lau Associates LLC, a Wilmington, Delaware based financial planning and investment advisory firm. Lau Associates LLC is a nationally recognized fee-only multi-family office that provides
comprehensive, integrated, and highly personalized financial services to high net worth individuals and families. The firm was founded by Judy Lau in 1985 and under her leadership, the firm has enjoyed tremendous growth and is recognized as one of
the top advisory firms in the country by such publications as
Bloomberg Wealth Manager Magazine, Medical Economics
and the
Robb Report Worth Magazine.
The acquisition was a significant step in our strategic plan to grow our wealth
management services. In a very short period of time we have witnessed great synergy between Lau Associates and Bryn Mawr Trust.
This acquisition was also
significant as it marked our first physical presence into the very attractive Delaware market.
Our second entry into the state of Delaware came on
November 5th when we announced the opening of a new subsidiary, a limited purpose trust company, The Bryn Mawr Trust Company of Delaware. This new subsidiary will allow Bryn Mawr Trust to serve as a corporate fiduciary under Delaware statutes,
which are widely recognized as being favorable with respect to the creation of tax-advantaged trust structures, LLCs and related wealth transfer vehicles for families and individuals throughout the United States. We now have the capability and
competitive advantage of being able to serve as a corporate fiduciary under either Delaware or Pennsylvania statutes, which is an appealing alternative for trust and estate attorneys when planning for their clients. Matthew G. Waschull, CTFA, has
been appointed as the Chairman and President of this new subsidiary.
The Bryn Mawr Trust Company of Delaware Team. Left to right: Danielle M. Kiss, CTFA, Assistant Vice President, Matthew G.
Waschull, CTFA, Chairman and President and Tamika T. Edwards, Trust Officer
West Chester Regional Banking Center Management Team. Left to right: David W. Glarner, Senior Vice President, Commercial
Lending; Peter J. D’Angelo, Senior Vice President, Commercial Lending; Trish Corby, Vice President, Retail Banking Manager and Anthony M. Jasienski, Vice President, Wealth Management
5
2008 ANNUAL REPORT
We ended the year completing construction on our new West Chester Regional Banking Center at 849 Paoli Pike, West Chester, PA
19380. The opening of this beautiful center gives us access to a large group of potential customers who are in our target demographic market. This conveniently located, state-of-the-art, facility is over 4,000 square feet and includes a multi-lane
drive-up and 24 hour ATM banking. We can deliver a full array of personal, business and wealth management services to our clients at our new center. The center is staffed with a team of professionals who have worked in this market for many years. It
is now more convenient than ever to serve the finan-cial needs of this market from a single location. We are very excited about our growth opportunities in this new market.
INVESTING IN PRODUCTS, SERVICES AND FACILITIES
Core deposit account growth was exceptional in terms of both the number of
accounts and deposit balance increases. Core deposit accounts increased 7.3% and average balances increased 9.1%. A number of factors contributed to our success in growing core deposit accounts including; a well trained and motivated sales staff,
focused sales management and tracking, well designed incentive programs and effective advertising and promotion. We also benefited from turmoil in the financial markets as many consumers were drawn to us because of our strong brand and reputation as
a strong, stable and secure financial institution.
Commercial mortgages, commercial and industrial loans, residential mortgages and home equity loans were
particularly strong in 2008. Total loans and leases increased by $97 million or 12.0% over 2007. Successful new business development efforts drove this growth which was primarily derived from existing customers, through strong cross selling and
up-selling efforts, and prospects in our trade area.
In May, we introduced Small Business Benefits – The Best Small Business Package Anywhere —
a package product designed to meet the deposit, cash management and basic borrowing needs of small businesses. The package included a number of free and/or discounted services with a premium rate on statement savings. In September, the package was
enhanced when we began offering discounted payroll services through a nationally recognized payroll processor. Sales of this new product have been very strong and we expect to see continued growth during 2009.
Below, left to right: Stephen P. Novak, Senior Vice President, Retail Banking and Brian J. Maguire, Senior Vice President, Director of Marketing
Above, left to right: Joseph G. Keefer, Executive Vice President and Chief Lending Officer and Martin F. Gallagher, Jr.,
Senior Vice President/Senior Relationship Manager, Commercial Lending
6
2008 ANNUAL REPORT
Significant accomplishments
Left: Newly renovated Wayne branch located at 330 East Lancaster Ave., Wayne, Pennsylvania
In June, we completed major renovations to our Wayne Branch and marked the occasion with a ribbon cutting ceremony attended by community leaders, clients and customers.
The redesign dramatically improved the appearance of this branch and allows us to serve our customers more efficiently and effectively. We invite you to visit the remodeled Wayne Branch to see for yourself just how great it looks. We think
you’ll be very impressed with this renovation.
COMMUNITY GIVING, ACTIVITIES AND EVENTS
Recognizing the need to support the communities we serve, particularly in tough economic times, we continued our tradition of generously supporting a wide variety of
charitable, educational, cultural and civic organizations. We are very pleased that we were able to support these worthwhile activities and organizations.
FDIC Insurance became a very important topic in the minds of many consumers as a result of the turmoil in the financial markets. Recognizing consumers’ interest in learning more about FDIC Insurance we held a seminar, open to the
public, to explain FDIC Insurance coverage. Members of our Retail Banking Team were also available to discuss any questions or concerns privately with seminar attendees. Those who could not attend were encouraged to call or visit a branch to have
their questions answered.
Identity theft is the fastest growing form of consumer fraud. We are committed to helping prevent customers and members of the
community from becoming victims of identity theft. To help combat this growing problem we held a series of free “shred events”, open to the public, where personal or sensitive documents could be shred by a secure document destruction
service. We received very positive feedback from this series of shred events.
Bryn Mawr Trust is committed to making a positive difference in the
communities we serve.
Bryn Mawr Trust.
Strong.
Stable. Secure.
Below. left to right: June M. Falcone, Senior Vice President, Information Technology and Operations and Maureen Callaghan, Vice
President, Wayne Branch Manager
7
2008 ANNUAL REPORT
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
801 Lancaster Avenue
Bryn
Mawr, Pennsylvania 19010
610-525-1700
www.bmtc.com
DIRECTORS
Thomas L. Bennett
Private Investor, Director and Trustee of the
Delaware Investments Family of
Funds
Andrea F. Gilbert
President, Bryn Mawr Hospital
Wendell F. Holland
Partner, Saul Ewing LLP
Scott M. Jenkins
President, S.M. Jenkins &
Co.
David E. Lees
Senior Partner, myCIO Wealth
Partners, LLC
Francis J. Leto
Executive Vice
President, Wealth Management
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.
MARKET MAKERS
Boenning & Scattergood, Inc.
Citigroup Global Markets Holdings Inc.
Deutsche Bank Securities Inc.
FTN Equity Capital Markets Corp.
Janney Montgomery Scott LLC
Keefe, Bruyette & Woods, Inc.
Lehman Brothers Inc.
Morgan Stanley & Co., Inc.
Ryan Beck & Co.,
Inc.
Sandler O’Neill & Partners, L.P.
Sterne,
Agee & Leach, Inc.
UBS Securities LLC
For a complete
list visit our website at
www.bmtc.com
INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG LLP
1601 Market Street
Philadelphia, Pennsylvania 19103
LEGAL COUNSEL
McElroy, Deutsch, Mulvaney & Carpenter, LLP
One Penn Center at Suburban Station
1617 John F. Kennedy
Boulevard
Suite 1500
Philadelphia, Pennsylvania 19103
Stradley Ronon Stevens & Young, LLP
2005
Market Street
Sutie 2600
Philadelphia, Pennsylvania
19103-7098
BRYN MAWR BANK CORPORATION
Frederick C.
“Ted” Peters II
Chairman, President and Chief Executive Officer
Robert J. Ricciardi
Secretary
J. Duncan Smith, CPA
Treasurer and Assistant Secretary
Geoffrey L. Halberstadt
Vice President
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
Francis J. Leto
Executive Vice President, Wealth Management
Robert J. Ricciardi
Executive Vice President, Chief Credit Policy
Officer and
Corporate Secretary
J. Duncan Smith, CPA
Executive
Vice President and Chief Financial Officer
Matthew G. Waschull, CTFA
Chairman and President, The Bryn Mawr
Trust Company of Delaware
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
849 Paoli Pike
West Chester, Pennsylvania 19380
One Tower Bridge
West Conshohocken, Pennsylvania 19428
WEALTH MANAGEMENT DIVISION
10 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania 19010
LIFE CARE COMMUNITY OFFICES
Beaumont at Bryn Mawr Retirement
Community
Bryn Mawr, Pennsylvania
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
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
The Bryn Mawr Trust Company of Delaware
A Subsidiary of Bryn Mawr Bank Corporation
Wilmington, Delaware
Matthew G. Waschull, CTFA, Chairman and President
Insurance Counsellors
of Bryn Mawr, Inc.
A Subsidiary of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Thomas F. Drennan, President
Lau Associates LLC
A Subsidiary of Bryn Mawr Bank Corporation
Wilmington, Delaware
Judith W. Lau, CFP
®
, President
REGISTRAR & TRANSFER AGENT
BNY Mellon Shareowner Services
PO Box 358015
Pittsburgh, Pennsylvania 15252-8015
www.bnymellon.com/shareowner/isd
BRYN MAWR BANK CORPORATION
801 LANCASTER AVENUE
BRYN MAWR, PENNSYLVANIA 19010
www.bmtc.com
Exhibit 13.1
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(dollars in thousands, except for per share data)
|
|
|
Interest income
|
|
$
|
57,934
|
|
|
$
|
54,218
|
|
|
$
|
45,906
|
|
|
$
|
37,908
|
|
|
$
|
31,347
|
|
|
Interest expense
|
|
|
20,796
|
|
|
|
19,976
|
|
|
|
12,607
|
|
|
|
6,600
|
|
|
|
4,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
37,138
|
|
|
|
34,242
|
|
|
|
33,299
|
|
|
|
31,308
|
|
|
|
26,794
|
|
|
Provision for loan and lease losses
|
|
|
5,596
|
|
|
|
891
|
|
|
|
832
|
|
|
|
762
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after loan loss provision
|
|
|
31,542
|
|
|
|
33,351
|
|
|
|
32,467
|
|
|
|
30,546
|
|
|
|
25,894
|
|
|
Non-interest income
|
|
|
21,472
|
|
|
|
21,781
|
|
|
|
18,361
|
|
|
|
18,305
|
|
|
|
19,828
|
|
|
Non-interest expense
|
|
|
38,676
|
|
|
|
34,959
|
|
|
|
31,423
|
|
|
|
31,573
|
|
|
|
31,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,338
|
|
|
|
20,173
|
|
|
|
19,405
|
|
|
|
17,278
|
|
|
|
14,097
|
|
|
Applicable income taxes
|
|
|
5,013
|
|
|
|
6,573
|
|
|
|
6,689
|
|
|
|
5,928
|
|
|
|
4,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
9,325
|
|
|
$
|
13,600
|
|
|
$
|
12,716
|
|
|
$
|
11,350
|
|
|
$
|
9,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.09
|
|
|
$
|
1.59
|
|
|
$
|
1.48
|
|
|
$
|
1.33
|
|
|
$
|
1.09
|
|
|
Diluted
|
|
$
|
1.08
|
|
|
$
|
1.58
|
|
|
$
|
1.46
|
|
|
$
|
1.31
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
$
|
0.54
|
|
|
$
|
0.50
|
|
|
$
|
0.46
|
|
|
$
|
0.42
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
8,566,938
|
|
|
|
8,539,904
|
|
|
|
8,578,050
|
|
|
|
8,563,027
|
|
|
|
8,610,171
|
|
|
Dilutive potential common shares
|
|
|
34,233
|
|
|
|
93,638
|
|
|
|
113,579
|
|
|
|
101,200
|
|
|
|
110,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares
|
|
|
8,601,171
|
|
|
|
8,633,542
|
|
|
|
8,691,629
|
|
|
|
8,664,227
|
|
|
|
8,721,025
|
|
|
|
|
|
|
|
|
|
Selected financial ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest margin
|
|
|
3.84
|
%
|
|
|
4.37
|
%
|
|
|
4.90
|
%
|
|
|
5.05
|
%
|
|
|
4.60
|
%
|
|
Net income/average total assets (“ROA”)
|
|
|
0.89
|
%
|
|
|
1.59
|
%
|
|
|
1.72
|
%
|
|
|
1.66
|
%
|
|
|
1.45
|
%
|
|
Net income/average shareholders’ equity (“ROE”)
|
|
|
10.01
|
%
|
|
|
15.87
|
%
|
|
|
15.71
|
%
|
|
|
15.50
|
%
|
|
|
13.73
|
%
|
|
Average shareholders’ equity to average total assets
|
|
|
8.91
|
%
|
|
|
10.04
|
%
|
|
|
10.93
|
%
|
|
|
10.72
|
%
|
|
|
10.59
|
%
|
|
Dividends declared per share to net income per basic common share
|
|
|
49.5
|
%
|
|
|
31.4
|
%
|
|
|
31.1
|
%
|
|
|
31.6
|
%
|
|
|
36.7
|
%
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Total assets
|
|
$
|
1,151,346
|
|
|
$
|
1,002,096
|
|
|
$
|
826,817
|
|
|
$
|
727,383
|
|
|
$
|
683,103
|
|
|
Earning assets
|
|
|
1,061,139
|
|
|
|
874,661
|
|
|
|
733,781
|
|
|
|
664,073
|
|
|
|
627,258
|
|
|
Portfolio loans and leases
|
|
|
899,577
|
|
|
|
802,925
|
|
|
|
681,291
|
|
|
|
595,165
|
|
|
|
555,889
|
|
|
Deposits
|
|
|
869,490
|
|
|
|
849,528
|
|
|
|
714,489
|
|
|
|
636,260
|
|
|
|
600,965
|
|
|
Shareholders’ equity
|
|
|
92,413
|
|
|
|
90,351
|
|
|
|
82,092
|
|
|
|
77,222
|
|
|
|
70,947
|
|
|
Ratio of tangible common equity to assets
|
|
|
7.13
|
%
|
|
|
9.02
|
%
|
|
|
9.97
|
%
|
|
|
10.66
|
%
|
|
|
10.43
|
%
|
|
Ratio of equity to assets
|
|
|
8.03
|
%
|
|
|
9.02
|
%
|
|
|
9.97
|
%
|
|
|
10.66
|
%
|
|
|
10.43
|
%
|
|
Loans serviced for others
|
|
|
350,199
|
|
|
|
357,363
|
|
|
|
382,141
|
|
|
|
417,649
|
|
|
|
507,421
|
|
|
Assets under management, administration & supervision
1
|
|
|
2,146,399
|
|
|
|
2,277,091
|
|
|
|
2,178,777
|
|
|
|
2,042,613
|
|
|
|
1,887,181
|
|
|
Book value per share
|
|
$
|
10.76
|
|
|
$
|
10.60
|
|
|
$
|
9.59
|
|
|
$
|
9.03
|
|
|
$
|
8.25
|
|
|
Tangible book value per share
|
|
$
|
9.55
|
|
|
$
|
10.60
|
|
|
$
|
9.59
|
|
|
$
|
9.03
|
|
|
$
|
8.25
|
|
|
Allowance as a percentage of portfolio loans and leases
|
|
|
1.15
|
%
|
|
|
1.01
|
%
|
|
|
1.19
|
%
|
|
|
1.24
|
%
|
|
|
1.23
|
%
|
|
Efficiency ratio
|
|
|
66.0
|
%
|
|
|
62.4
|
%
|
|
|
60.8
|
%
|
|
|
63.6
|
%
|
|
|
67.8
|
%
|
|
1
|
Excluded assets under management from an institutional client
|
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations
B
RIEF
H
ISTORY
OF
THE
C
ORPORATION
The Bryn Mawr Trust Company (the “Bank” or
“BMTC”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation” or “BMBC”) 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 nine full-service branches and seven limited-hour retirement community offices throughout Montgomery, Delaware and Chester counties. The Corporation trades on the NASDAQ Global Market (“NASDAQ”) 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 Securities and Exchange Commission (“SEC”), NASDAQ,
Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Pennsylvania Department of Banking.
R
ESULTS
OF
O
PERATIONS
The
following is Management’s 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
Corporation’s consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. Current performance does not guarantee, and may not be indicative of similar
performance in the future.
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 inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous year’s financial statements to the current year’s presentation. In preparing
the consolidated financial statements, 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.
Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan and lease 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 and leases, 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 and lease 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. See the section of this document titled Asset Quality and Analysis
of Credit Risk for additional information.
Other significant accounting policies
are presented in Note 1 in the accompanying financial statements.
The Corporation’s Summary of Significant Accounting Policies has not substantively changed any aspect of its overall approach in the application of the foregoing policies.
2
O
VERVIEW
OF
G
ENERAL
E
CONOMIC
, R
EGULATORY
AND
G
OVERNMENTAL
E
NVIRONMENT
The global and U.S. economies experienced reduced business activity as a result of the recessionary environment and disruptions in the financial system that occurred during 2008 and have continued into 2009. A partial
summary of the events follows:
Dramatic declines in the housing market during the past year, as home prices fell and foreclosures and unemployment
increased, resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks.
The drop in real estate values negatively impacted residential real estate builder and developer businesses nationwide. As the U.S. economy entered a recession in 2008, financial institutions faced higher credit
losses from distressed real estate values and borrower defaults which resulted in reduced capital levels. In addition, investment securities backed by residential and commercial real estate were reflecting substantial unrealized losses due to a lack
of liquidity in the financial markets and anticipated credit losses. Some financial institutions were forced into liquidation or were merged with stronger institutions as losses increased and the amounts of available funding and capital levels
lessened. As of December 31, 2008, the Bryn Mawr Bank Corporation (the “Corporation” and “BMBC”) and The Bryn Mawr Trust Company (“BMTC” and the “Bank”) are “well capitalized” by regulatory
standards and is in a position to acquire new customers from weaker financial institutions.
In response to the financial crisis affecting the banking
system and financial markets, the Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008. The EESA authorizes the U.S. Treasury the ability to provide funds to restore liquidity and stability
to the U.S. financial system. Two of the specific programs, the Troubled Asset Relief Program (“TARP”) and the Temporary Liquidity Guarantee Program (“TLGP”) are described in further detail below.
On October 14, 2008, the U.S. Treasury announced the formation of the TARP program under which the Treasury purchases equity stakes in certain banks and thrifts.
The Treasury’s initial effort was to make available $250 billion of capital to U.S. financial institutions in the form of preferred stock (from the $700 billion authorized by the EESA). In conjunction with the purchase of preferred stock, the
Treasury receives warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions will be required to adopt the Treasury’s standards for executive compensation and
corporate governance for the period during which the Treasury holds equity issued under the TARP program. The Corporation elected not to participate in the program due to its “well capitalized” regulatory capital position and the ever
changing conditions of the TARP program.
The second program announced on October 14, 2008 was the systemic risk exception to the Federal Deposit
Insurance Corporation (“FDIC”) Act, enabling the FDIC to temporarily provide a 100% guarantee of the senior unsecured debt of all FDIC-insured institutions and their holding companies, as well as deposits in noninterest-bearing transaction
deposit accounts under the TLGP through December 31, 2009. Pursuant to this program, all insured depository institutions automatically participated in the TLGP for 30 days following the announcement of the program without charge and thereafter,
unless the institution opted out, at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for noninterest-bearing transaction deposits.
The TLGP program initial guidelines have been subsequently altered by the FDIC to impose a fee structure based on a sliding scale dependent on debt maturity. Debt with a maturity of 180 days or less will have a fee of
50 basis points, while debt with a maturity of one year or longer will have a maximum fee of 100 basis points, both on an annualized basis. The TLGP program also now covers NOW accounts with interest rates of 0.5% or less and IOLTA accounts. BMTC
chose to continue its participation in the TLGP and, thus, did not opt out.
On December 23, 2008, the Federal Home Loan Bank of Pittsburgh
(“FHLB-P”) announced that it will voluntarily suspend the payment of dividends and the repurchase of excess capital stock until further notice. The FHLB-P expects that its ability to pay dividends and add to retained earnings will be
significantly curtailed due to low short-term interest rates, an increased cost of maintaining liquidity and constrained access to debt markets at attractive rates. Capital stock repurchases from member banks will be reviewed on a quarterly basis,
but no repurchase will take place in the first quarter of 2009, or in subsequent quarters until advised. As of December 31, 2008, the Corporation held $7.9 million of FHLB-P capital stock and is monitoring the situation closely as are other
FHLB-P member banks. The FHLB-P is the primary source of liquidity for the Corporation, but it can also use other alternatives available to the Corporation that include the Federal Reserve and wholesale certificates of deposit.
Revenue in the Corporation’s core wealth management business decreased due to the downturn in the fair value of the financial markets as fees are based on assets
under management. Overall, revenue for Wealth Management services in 2008 increased $340 thousand from December 31, 2007 due to the mid-year acquisition of Lau Associates, which is described in further detail later in the Annual Report. A
prolonged downturn in the financial markets could further reduce wealth management revenue and might impair the fair value of the Corporation’s mid-year acquisition of Lau Associates, even though their revenue structure is not directly
dependent on the fair value of wealth assets being serviced.
3
Other significant events during 2008 included, The Federal National Mortgage Association (“Fannie Mae”) and The
Federal Home Loan Mortgage Corporation (“Freddie Mac”), two government-sponsored entities placed into conservatorship in September 2008 by the U.S. Government and The Federal Reserve lowering its federal funds target rate from 4.25%
at the end of 2007 to a range of 0%-.25% at December 31, 2008.
Subsequent to year-end 2008, two additional financial and economic backstops have been
introduced. The extension of the TARP program, TARP 2, was introduced by the Treasury to inject $100 billion of new capital into banks to modify mortgages for homeowners facing foreclosures. And secondly, the Stimulus Plan of 2009, which is a
two-year effort to accelerate job creation and increase infrastructure spending.
It is not clear at this time what impact the EESA, the TARP program and
the TLGP program, or other 2009 financial and economic initiatives will have on the financial markets. A continued and drawn-out economic recession could have an adverse effect on the Corporation’s revenues, capital, liquidity and
profitability. However, the Corporation is confident that its disciplined strategies to maintain a strong financial position and build the brand name put it in a good position to weather the financial downturn and take advantage of opportunities as
they arise.
On February 27, 2009 the FDIC adopted an interim rule imposing a 20 basis point emergency special assessment on the banking industry on
June 30, 2009. The assessment is to be collected on September 30, 2009. The interim rule would also permit the FIDC to impose an emergency special assessment after June 30, 2009 of up to 10 basis points if necessary to maintain public
confidence in federal deposit insurance. Comments on the interim rule on special assessments are due no later than 30 days after publication in the Federal Register. A special assessment of 20 basis points would amount to approximately $1.74 million
based on December 31, 2008 deposits of approximately $869 million.
E
XECUTIVE
O
VERVIEW
2008 Compared to 2007
In a year of unprecedented financial turbulence, Bryn Mawr Bank Corporation earned $9.3 million or $1.08 per diluted share and is in a position to acquire new customers
from weaker financial institutions as 2009 unfolds. The Corporation elected not to participate in the United States Government’s TARP Program due to the Corporation’s regulatory capital status of “well capitalized” and the ever
changing conditions of the TARP Program.
The Corporation’s 2008 diluted earnings per share decreased $0.50 per share or 31.6% compared to $1.58 per
share in 2007, and net income for the year ended December 31, 2008 decreased 31.6% or $4.3 million, compared to $13.6 million last year. Return on average equity (ROE) and return on average assets (ROA) for the year ended December 31, 2008
were10.01% and 0.89%, respectively. ROE was 15.87% and ROA was 1.59% for the same period last year.
During 2008, the Corporation made progress on several
of its growth initiatives including establishing a limited purpose trust company (“LPTC”) in the State of Delaware. The LPTC statutes in Delaware give the Corporation an advantage structuring directed trusts, while providing more favorable
treatment to individuals and family trusts. On January 2, 2009, the Corporation opened its West Chester regional branch office which will bring our wealth management and banking services into another affluent market with good growth potential
while further diversifying its asset base and client accounts.
On July 15, 2008, the Corporation acquired Lau Associates, a Wilmington, Delaware,
based investment advisory and financial planning firm. Lau Associates is a nationally recognized, independent, family office that excels in intergenerational financial planning and taxes for high net worth individuals and families. The acquisition
of Lau Associates in 2008 was immediately accretive to earnings, and should have a more significant impact in 2009 due to the inclusion of 12 months of results, along with anticipated business synergies.
The Corporation increased portfolio loans and leases in 2008 by 12.0% or $96.7 million compared with year-end 2007 balances by expanding banking relationships with
local businesses, not-for-profit entities and high credit quality individuals. The increase in the Corporation’s tax equivalent net interest income of $2.8 million or 8.2% for the year ended December 31, 2008 compared to the same period
last year was due to the increase in loan and lease volume, and the growth in the investment portfolio, which more than offset the decrease in asset yields and higher funding costs. The Corporation’s tax-equivalent net interest margin declined
from 4.37% in 2007 to 3.84% in 2008.
The loan portfolio, excluding leases, grew 10.9% or $82.4 million to $840.3 million in 2008 compared with
$757.8 million in 2007. This increase included home equity loans and lines, commercial and industrial loans and commercial mortgages. The lease portfolio grew 31.5% or $14.2 million to $59.3 in 2008 and now represents approximately 6.6% of
total portfolio loans and leases. The lease portfolio, which is national in scope, did not perform well in 2008 as charge-offs were 6.24% of average leases. Management made underwriting adjustments at the end of 2007 and has continued to
“tighten” these standards in 2008 and early 2009.
4
Credit quality on the overall loan and lease portfolio remains strong as total non-performing loans and leases represents
65 basis points or $5.8 million of portfolio loans and leases at December 31, 2008. This compares with 25 basis points or $2.0 million at December 31, 2007. The provision for loan and lease losses for the year ended December 31,
2008 and 2007 was $5.6 million and $891 thousand, respectively. At December 31, 2008, the allowance for loan and lease losses (“allowance”) of $10.3 million represents 1.15% of portfolio loans and leases compared with 1.01% at
December 31, 2007. For additional information, see the section titled Asset Quality and Analysis of Credit Risk in this document.
Funding from
wholesale sources, which includes wholesale deposits, subordinated debt and borrowings, at December 31, 2008 of approximately $290.7 million was $115.9 million higher than the $174.8 million at December 31, 2007. The
incremental wholesale funding was primarily used to fund $96.7 million of growth in the loan and lease portfolio and $60.0 million of growth in the Corporation’s investment portfolio.
For the year ended December 31, 2008, non-interest income was $21.5 million, a decrease of $0.3 million or 1.4% from the $21.8 million in 2007. The primary factor
for this decrease was the one-time gain on the sale of real estate of $1.3 million in the first quarter of 2007. Partially offsetting this decrease were the gain on sale of investments of $230 thousand, interest rate floor income of $268 thousand
and increased wealth revenue which is attributed to the acquisition of Lau Associates. Wealth revenues not associated with Lau Associates decreased by $1.3 million or 9.7% in 2008 due to the decline in the value of the financial markets and the loss
of a significant customer due to a business combination in the fourth quarter of 2007.
For the year ended December 31, 2008, non-interest expense was
$38.7 million, an increase of $3.7 million or 10.6% over the $35.0 million in the same period last year. Personnel and related support costs associated with new business initiatives including the Lau Associates acquisition and the
impairment of mortgage servicing rights were the largest contributors to this increase.
2007 Compared to 2006
The Corporation reported 2007 diluted earnings per share of $1.58, an increase of $0.12 per share or 8.2% compared to $1.46 per share in 2006. Net income for the year
ended December 31, 2007 was $13.6 million, an increase of 7.0% or $884 thousand, compared to $12.7 million last year.
The primary factor
contributing to the increase in earnings for 2007 was a $0.10 per share or $866 thousand after-tax gain on the sale of real estate.
Return on average
equity (ROE) and return on average assets (ROA) for the year ended December 31, 2007 were 15.87% and 1.59%, respectively. ROE was 15.71% and ROA was 1.72% for the same period in 2006.
The Corporation invested in many new business initiatives in the latter part of 2006 continuing through 2007. These new initiatives contributed to the $3.5 million
or 11.3% increase in non-interest expenses in 2007 compared to 2006.
The Corporation increased portfolio loans and leases in 2007 by 17.9% or
$121.6 million compared with year-end 2006 balances. This growth in loan and lease volume was able to offset several prime rate decreases and higher funding costs, to increase the Corporation’s tax equivalent net interest income by $921
thousand or 2.7% for the year ended December 31, 2007 compared to the same period in 2006. The Corporation’s tax-equivalent net interest margin declined from 4.90% in 2006 to 4.37% in 2007.
Credit quality on the overall loan and lease portfolio was strong in 2007 as total non-performing loans and leases represented 25 basis points or $2.0 million of
portfolio loans and leases at December 31, 2007 compared with 12 basis points or $823 thousand at December 31, 2006.
The provision for loan and
lease losses for the year ended December 31, 2007 and 2006 were $891 thousand and $832 thousand, respectively. At December 31, 2007, the allowance for loan and lease losses (“allowance”) of $8.1 million represented
1.01% of portfolio loans and leases compared with 1.19% at December 31, 2006.
Funding from wholesale sources, which includes wholesale deposits and
borrowings, at December 31, 2007 of approximately $174.8 million was $139.8 million higher than the $35.0 million at December 31, 2006. The increase in 2007 was primarily used to fund portfolio loan and lease growth of
approximately $122.0 million. During 2007, deposits continued to shift from lower yielding savings and NOW accounts into higher yielding money market accounts, but at a much slower pace than the Corporation experienced in 2006.
Deposit balances at December 31, 2007 and 2006 reflect approximately $70.0 million and $35.0 million, respectively, in demand deposit balances that
represented short term in-flows from customer year-end activity. These short term deposit in-flows pushed the Corporation’s total assets over the $1.0 billion level at December 31, 2007.
For the year ended December 31, 2007, non-interest income was $21.8 million, an increase of $3.4 million or 18.6% from the $18.4 million in 2006. The
primary factors for this increase were the $1.3 million real estate gain on the sale of the Wynnewood property and Wealth Management revenue of $13.5 million which was $1.1 million or 8.7% higher than 2006.
5
Wealth Management revenues for the years ended December 31, 2007 and December 31, 2006 included
$580 thousand and $403 thousand, respectively, of fees that would no longer be earned relating to one institutional client that was acquired by another financial institution in a business combination on November 16, 2007. Wealth assets
under Management and Administration relating to this client were approximately $412.4 million at December 31, 2006 and zero at December 31, 2007.
For the year ended December 31, 2007, non-interest expense was $35.0 million, an increase of $3.6 million or 11.3% over the $31.4 million in the same period in 2006. Personnel and related support costs associated with
the new business initiatives were the largest contributor to this increase in non-interest expenses.
NON-GAAP M
EASURES
Non-GAAP Measures: A non-GAAP financial measure is a numerical
measure of a company’s performance, financial position, or cash flows that either exclude or include amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with
generally accepted accounting principles (GAAP). To supplement our financial statements presented in accordance with GAAP, we report certain key financial measurements without the impact of a material real estate transaction.
Our management uses these non-GAAP measures in its analysis of the Corporation’s performance. These non-GAAP measures consist of adjusting net income, non-interest
income, diluted earnings per share, ROE, and ROA determined in accordance with GAAP to exclude the effects of the real estate gain in the first quarter of 2007 (i.e. year to date) and the year to date period ended December 31, 2007.
Management believes that the inclusion of these non-GAAP financial measures provides useful supplemental information essential to the proper understanding of the
operating results of the Corporation’s core business. These measures should be considered in addition to results prepared in accordance with GAAP, and are not substitutes for, or superior to, GAAP results. The non-GAAP measures are provided to
enhance investors’ overall understanding of our current financial performance. These non-GAAP measures have been reconciled to the nearest GAAP measure in the accompanying schedule.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands
|
|
Year Ended December 31,
|
|
|
Net Income
|
|
Diluted Earnings Per Share
|
|
except per share data)
|
|
2008
|
|
2007
|
|
|
2006
|
|
2008
|
|
2007
|
|
|
2006
|
|
As reported (GAAP)
|
|
$
|
9,325
|
|
$
|
13,600
|
|
|
$
|
12,716
|
|
$
|
1.08
|
|
$
|
1.58
|
|
|
$
|
1.46
|
|
After tax effect of gain on sale of real estate
|
|
|
—
|
|
|
(866
|
)
|
|
|
—
|
|
|
—
|
|
|
(0.10
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for sale
|
|
$
|
9,325
|
|
$
|
12,734
|
|
|
$
|
12,716
|
|
$
|
1.08
|
|
$
|
1.48
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income
|
|
|
2008
|
|
2007
|
|
|
2006
|
|
As reported (GAAP)
|
|
$
|
21,472
|
|
$
|
21,781
|
|
|
$
|
18,361
|
|
Gain on sale of real estate
|
|
|
—
|
|
|
(1,333
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for sale
|
|
$
|
21,472
|
|
$
|
20,448
|
|
|
$
|
18,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE
|
|
|
ROA
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
As reported (GAAP)
|
|
10.01
|
%
|
|
15.87
|
%
|
|
15.71
|
%
|
|
0.89
|
%
|
|
1.59
|
%
|
|
1.72
|
%
|
|
After tax effect of gain on sale of real estate
|
|
—
|
|
|
(1.01
|
)
|
|
—
|
|
|
—
|
|
|
(0.10
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for sale
|
|
10.01
|
%
|
|
14.86
|
%
|
|
15.71
|
%
|
|
0.89
|
%
|
|
1.49
|
%
|
|
1.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
Provision For Loan and Lease Losses
, or the amount added to the allowance for loan
and lease losses to provide 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
and other assets;
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 Analysis (Tax Equivalent Basis)
The rate volume analysis in the table below analyzes changes in tax equivalent net interest income for the years 2007 compared to 2006 and 2006 compared to 2005 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.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Year Ended December 31,
|
|
|
2008 Compared to 2007
|
|
|
2007 Compared to 2006
|
|
increase/(decrease)
|
|
Volume
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits with banks
|
|
$
|
867
|
|
$
|
(798
|
)
|
|
$
|
69
|
|
|
$
|
44
|
|
|
$
|
2
|
|
|
$
|
46
|
|
Money market funds
|
|
|
162
|
|
|
(152
|
)
|
|
|
10
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
Federal funds sold
|
|
|
106
|
|
|
(144
|
)
|
|
|
(38
|
)
|
|
|
21
|
|
|
|
7
|
|
|
|
28
|
|
Investment securities available for sale
|
|
|
2,522
|
|
|
(271
|
)
|
|
|
2,251
|
|
|
|
(73
|
)
|
|
|
294
|
|
|
|
221
|
|
Loans and leases
|
|
|
7,820
|
|
|
(6,463
|
)
|
|
|
1,357
|
|
|
|
7,184
|
|
|
|
810
|
|
|
|
7,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
11,477
|
|
|
(7,828
|
)
|
|
|
3,649
|
|
|
|
7,176
|
|
|
|
1,114
|
|
|
|
8,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and market rate accounts
|
|
|
628
|
|
|
(1,044
|
)
|
|
|
(416
|
)
|
|
|
(155
|
)
|
|
|
475
|
|
|
|
320
|
|
Wholesale deposits
|
|
|
2,210
|
|
|
(1,637
|
)
|
|
|
573
|
|
|
|
4,531
|
|
|
|
(185
|
)
|
|
|
4,346
|
|
Time deposits
|
|
|
355
|
|
|
(2,226
|
)
|
|
|
(1,871
|
)
|
|
|
569
|
|
|
|
956
|
|
|
|
1,525
|
|
Borrowed Funds
|
|
|
4,907
|
|
|
(2,373
|
)
|
|
|
2,534
|
|
|
|
1,238
|
|
|
|
(60
|
)
|
|
|
1,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
8,100
|
|
|
(7,280
|
)
|
|
|
820
|
|
|
|
6,183
|
|
|
|
1,186
|
|
|
|
7,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest differential
|
|
$
|
3,377
|
|
$
|
(548
|
)
|
|
$
|
2,829
|
|
|
$
|
993
|
|
|
$
|
(72
|
)
|
|
$
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
Analysis of Interest Rates and Interest Differential
The table below presents the major asset and liability categories on an average daily basis for the periods presented, along with tax-equivalent interest income and expense and key rates and yields:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
Average
Rates
Earned/
Paid
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits with banks
|
|
$
|
18,678
|
|
|
$
|
145
|
|
0.78
|
%
|
|
$
|
1,506
|
|
|
$
|
76
|
|
5.05
|
%
|
|
$
|
609
|
|
|
$
|
30
|
|
4.93
|
%
|
|
Federal funds sold
|
|
|
5,616
|
|
|
|
136
|
|
2.42
|
%
|
|
|
3,496
|
|
|
|
174
|
|
4.98
|
%
|
|
|
3,053
|
|
|
|
146
|
|
4.78
|
%
|
|
Money market funds
|
|
|
3,445
|
|
|
|
19
|
|
0.55
|
%
|
|
|
182
|
|
|
|
9
|
|
4.95
|
%
|
|
|
191
|
|
|
|
8
|
|
4.19
|
%
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
86,940
|
|
|
|
4,127
|
|
4.75
|
%
|
|
|
39,510
|
|
|
|
2,008
|
|
5.08
|
%
|
|
|
41,298
|
|
|
|
1,782
|
|
4.31
|
%
|
|
Tax – Exempt
|
|
|
7,538
|
|
|
|
364
|
|
4.83
|
%
|
|
|
5,029
|
|
|
|
232
|
|
4.61
|
%
|
|
|
4,993
|
|
|
|
237
|
|
4.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
94,478
|
|
|
|
4,491
|
|
4.75
|
%
|
|
|
44,539
|
|
|
|
2,240
|
|
5.03
|
%
|
|
|
46,291
|
|
|
|
2,019
|
|
4.36
|
%
|
|
Loans and leases
(1)
|
|
|
851,752
|
|
|
|
53,410
|
|
6.27
|
%
|
|
|
740,694
|
|
|
|
52,053
|
|
7.03
|
%
|
|
|
636,286
|
|
|
|
44,059
|
|
6.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
973,969
|
|
|
|
58,201
|
|
5.98
|
%
|
|
|
790,418
|
|
|
|
54,552
|
|
6.90
|
%
|
|
|
686,430
|
|
|
|
46,262
|
|
6.74
|
%
|
|
Cash and due from banks
|
|
|
15,780
|
|
|
|
|
|
|
|
|
|
22,640
|
|
|
|
|
|
|
|
|
|
25,358
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(8,613
|
)
|
|
|
|
|
|
|
|
|
(8,463
|
)
|
|
|
|
|
|
|
|
|
(7,828
|
)
|
|
|
|
|
|
|
|
Other assets
|
|
|
64,542
|
|
|
|
|
|
|
|
|
|
48,725
|
|
|
|
|
|
|
|
|
|
36,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,045,678
|
|
|
|
|
|
|
|
|
$
|
853,320
|
|
|
|
|
|
|
|
|
$
|
740,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW, and market rate accounts
|
|
$
|
325,291
|
|
|
$
|
3,753
|
|
1.15
|
%
|
|
$
|
280,371
|
|
|
$
|
4,169
|
|
1.49
|
%
|
|
$
|
292,075
|
|
|
$
|
3,850
|
|
1.32
|
%
|
|
Wholesale deposits
|
|
|
133,882
|
|
|
|
5,498
|
|
4.11
|
%
|
|
|
92,329
|
|
|
|
4,925
|
|
5.53
|
%
|
|
|
10,473
|
|
|
|
579
|
|
5.53
|
%
|
|
Time deposits
|
|
|
194,739
|
|
|
|
6,791
|
|
3.49
|
%
|
|
|
187,044
|
|
|
|
8,662
|
|
4.63
|
%
|
|
|
173,271
|
|
|
|
7,136
|
|
4.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
653,912
|
|
|
|
16,042
|
|
2.45
|
%
|
|
|
559,744
|
|
|
|
17,756
|
|
3.17
|
%
|
|
|
475,819
|
|
|
|
11,565
|
|
2.43
|
%
|
|
Subordinated debt
|
|
|
5,934
|
|
|
|
408
|
|
6.88
|
%
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
Borrowings
|
|
|
130,490
|
|
|
|
4,346
|
|
3.33
|
%
|
|
|
42,496
|
|
|
|
2,220
|
|
5.22
|
%
|
|
|
19,442
|
|
|
|
1,042
|
|
5.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
790,336
|
|
|
|
20,796
|
|
2.63
|
%
|
|
|
602,240
|
|
|
|
19,976
|
|
3.32
|
%
|
|
|
495,261
|
|
|
|
12,607
|
|
2.55
|
%
|
|
Non-interest-bearing deposits
|
|
|
143,924
|
|
|
|
|
|
|
|
|
|
148,773
|
|
|
|
|
|
|
|
|
|
150,042
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
18,243
|
|
|
|
|
|
|
|
|
|
16,622
|
|
|
|
|
|
|
|
|
|
14,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
162,167
|
|
|
|
|
|
|
|
|
|
165,395
|
|
|
|
|
|
|
|
|
|
164,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
952,503
|
|
|
|
|
|
|
|
|
|
767,635
|
|
|
|
|
|
|
|
|
|
659,887
|
|
|
|
|
|
|
|
|
Shareholder’s equity
|
|
|
93,175
|
|
|
|
|
|
|
|
|
|
85,685
|
|
|
|
|
|
|
|
|
|
80,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,045,678
|
|
|
|
|
|
|
|
|
$
|
853,320
|
|
|
|
|
|
|
|
|
$
|
740,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
3.58
|
%
|
|
|
|
|
|
|
|
|
4.19
|
%
|
|
Effect of non-interest-bearing sources
|
|
|
|
|
|
|
|
|
0.49
|
%
|
|
|
|
|
|
|
|
|
0.79
|
%
|
|
|
|
|
|
|
|
|
0.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/margin on earning assets
|
|
|
|
|
|
$
|
37,405
|
|
3.84
|
%
|
|
|
|
|
|
$
|
34,576
|
|
4.37
|
%
|
|
|
|
|
|
$
|
33,655
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent adjustment (tax rate 35%)
|
|
|
|
|
|
$
|
267
|
|
0.03
|
%
|
|
|
|
|
|
$
|
334
|
|
0.04
|
%
|
|
|
|
|
|
$
|
356
|
|
0.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. Average loans and leases include portfolio loans, leases and loans held for sale.
|
Net Interest Income and Net Interest Margin 2008 Compared to 2007
Net interest income on a tax equivalent basis for the year ended
December 31, 2008 of $37.4 million was 8.1% higher than $34.6 million in 2007. This increase was substantially volume driven as average loan growth of $111.1 million or 15.0% and investment security growth of $50 million were
able to offset several prime rate decreases and the impact of funding with higher cost wholesale funds, which includes wholesale deposits, subordinated debt and borrowings.
Average interest bearing liabilities increased by $188.1 million or 31.2% to $790.3 million during 2008 compared to $602.2 million during 2007. Wholesale deposits and borrowings were the primary factors
contributing to the increase in average interest bearing liabilities. The change in average other deposit balances in 2008 was a nominal $1.6 million increase.
Despite the increase in tax equivalent net interest income due to increased loan, lease and investment balances, the tax equivalent net interest margin on interest earning assets decreased by 53 basis points from
4.37% during 2007 to 3.84% during 2008, due to lower rates on interest earning assets.
7
Net Interest Income and Net Interest Margin 2007 Compared to 2006
Net interest income on a tax equivalent basis for the year ended December 31, 2007 of $34.6 million was 2.7% higher than $33.7 million in 2006. This
increase was substantially volume driven as average loan growth of $104.4 million or 16.4% was able to offset several prime rate decreases and the impact of funding with higher cost wholesale funds.
Average interest bearing liabilities increased by $107.0 million or 21.6% to $602.2 million during 2007 compared to $495.2 million during 2006. Wholesale
deposits and borrowings were the primary factors contributing to the increase in average interest bearing liabilities. The change in average other deposit balances in 2007 was a nominal $1.3 million decrease.
Despite the increase in tax equivalent net interest income, the tax equivalent net interest margin on interest earning assets decreased by 53 basis points from 4.90%
during 2006 to 4.37% during 2007.
Net Interest Margin Over Last Five Quarters
The Corporation’s tax equivalent net interest margin decreased 48 basis points to 3.63% in the fourth quarter of 2008 from 4.11% in the same period in 2007. The reduction in the earning asset yield was due to
prime rate decreases and competitive pressure. In the fourth quarter of 2007, the prime rate was 7.25% compared with 3.25% in the fourth quarter of 2008.
The interest bearing liability cost decreased in the fourth quarter of 2008 to 2.42%, a decrease of 101 basis points from the fourth quarter of 2007. This reduction was slower than the earning asset yield drop, mainly due to competitive
pressures and pricing by other institutions which kept deposit rates abnormally high.
The tax equivalent net interest margin and related components for
the past five linked quarters are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2008
|
|
5.63
|
%
|
|
2.42
|
%
|
|
3.21
|
%
|
|
0.42
|
%
|
|
3.63
|
%
|
|
3
rd
Quarter
|
|
2008
|
|
5.94
|
%
|
|
2.47
|
%
|
|
3.47
|
%
|
|
0.43
|
%
|
|
3.90
|
%
|
|
2
nd
Quarter
|
|
2008
|
|
6.05
|
%
|
|
2.58
|
%
|
|
3.47
|
%
|
|
0.50
|
%
|
|
3.97
|
%
|
|
1
st
Quarter
|
|
2008
|
|
6.46
|
%
|
|
3.14
|
%
|
|
3.32
|
%
|
|
0.65
|
%
|
|
3.97
|
%
|
|
4
th
Quarter
|
|
2007
|
|
6.77
|
%
|
|
3.43
|
%
|
|
3.34
|
%
|
|
0.77
|
%
|
|
4.11
|
%
|
|
|
|
|
|
|
|
|
|
Net Interest Margin Last Three Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
5.98
|
%
|
|
2.63
|
%
|
|
3.35
|
%
|
|
0.49
|
%
|
|
3.84
|
%
|
|
|
|
2007
|
|
6.90
|
%
|
|
3.32
|
%
|
|
3.58
|
%
|
|
0.79
|
%
|
|
4.37
|
%
|
|
|
|
2006
|
|
6.74
|
%
|
|
2.55
|
%
|
|
4.19
|
%
|
|
0.71
|
%
|
|
4.90
|
%
|
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. Management’s Asset Liability Committee (“ALCO”), using policies and procedures approved by the Corporation’s Board of Directors, is responsible for managing the interest
rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities, through the management of its investment portfolio, its offering of loan and
selected deposit terms and through wholesale funding. Wholesale funding consists of several sources including borrowings from the FHLB-P, Federal Reserve Bank of Philadelphia discount window, certificates of deposit from institutional brokers,
Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program and Pennsylvania Local Government Investment Trust (“PLGIT”).
The Corporation uses several tools to manage its interest rate risk including interest rate sensitivity analysis (a/k/a “GAP Analysis”), market value of
portfolio equity analysis, interest rate simulations under various rate scenarios and tax equivalent net interest margin reports. The results of these reports are compared to limits established by the Corporation’s ALCO Policies and appropriate
adjustments are made if the results are outside 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 Corporation’s 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 Corporation’s policy guidelines. Actual results may differ significantly from the interest rate simulation due to numerous factors including assumptions, the competitive environment, market reactions and customer behavior.
8
Summary of Interest Rate Simulation
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31, 2008
|
|
|
|
Estimated Change
In Net Interest
Income Over
Next 12 Months
|
|
|
Change in Interest Rates
|
|
|
|
|
|
|
|
|
+200 basis points
|
|
$
|
1,126
|
|
|
2.75
|
%
|
|
+100 basis points
|
|
$
|
(316
|
)
|
|
(.77
|
)%
|
|
-100 basis points
|
|
$
|
463
|
|
|
1.13
|
%
|
|
-200 basis points*
|
|
$
|
N/A
|
|
|
N/A
|
|
|
*
|
Figures are N/A due to current rate environment
|
The interest rate
simulation above indicates that the Corporation’s balance sheet as of December 31, 2008 is essentially interest rate neutral to slightly asset sensitive, meaning that an increase or decrease in interest rates will not have a significant
impact on net interest income over the next 12 months. The interest rate simulation is an estimate based on assumptions, which are based in part on past behavior of customers, along with expectations of future behavior relative to interest rate
changes. In today’s uncertain economic times, the reliability of the Corporation’s interest rate simulation model is more uncertain. Actual customer behavior may be significantly different than expected behavior, which could cause an
unexpected outcome which might translate into lower net interest income. The Corporation’s current sensitivity to interest rate changes is essentially unchanged from December 31, 2007.
GAP Report
The interest sensitivity or “GAP” report
identifies interest rate risk by showing repricing gaps in the bank’s balance sheet. All assets and liabilities are reflected based on behavioral sensitivity, which is usually the earliest of either: repricing, maturity, contractual
amortization, prepayments or likely call dates. Non-maturity deposits such as NOW, Savings and money market accounts are spread over various time periods based on the expected sensitivity of these rates considering liquidity and investment
preferences for the bank. Non-rate sensitive assets and liabilities are spread over time periods to reflect how the Corporation views the maturity of these funds.
Non-maturity deposits, demand deposits in particular, are recognized by the regulatory agencies to have different sensitivities to interest rate environments. Consequently, it is an accepted practice to spread non-maturity deposits over
defined time periods in order to capture that sensitivity. Commercial demand deposits are often in the form of compensating balances, and fluctuate inversely to the level of interest rates; the maturity of those deposits is reported as having a
shorter life than typical retail demand deposits. Additionally, the regulatory capital agencies have inferred what the appropriate distribution limits are for non-maturity deposits. The Corporation has taken a more conservative approach than these
limits would imply by reporting them as having a shorter maturity. The following table presents the Corporation’s GAP Analysis as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
0 to 90
Days
|
|
|
91 to 365
Days
|
|
|
1 - 5
Years
|
|
|
Over
5 Years
|
|
|
Non-Rate
Sensitive
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits with banks
|
|
$
|
45,100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,100
|
|
|
Federal funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Money market funds
|
|
|
5,109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,109
|
|
|
Investment securities
|
|
|
15,969
|
|
|
|
29,140
|
|
|
|
46,884
|
|
|
|
16,336
|
|
|
|
—
|
|
|
|
108,329
|
|
|
Loans
(1)
|
|
|
365,898
|
|
|
|
67,442
|
|
|
|
378,810
|
|
|
|
90,451
|
|
|
|
—
|
|
|
|
902,601
|
|
|
Allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,332
|
)
|
|
|
(10,332
|
)
|
|
Cash and due from banks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,776
|
|
|
|
18,776
|
|
|
Other assets
|
|
|
—
|
|
|
|
—
|
|
|
|
247
|
|
|
|
559
|
|
|
|
80,597
|
|
|
|
81,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
432,076
|
|
|
$
|
96,582
|
|
|
$
|
425,941
|
|
|
$
|
107,346
|
|
|
$
|
89,401
|
|
|
$
|
1,151,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, non-interest-bearing
|
|
$
|
33,582
|
|
|
$
|
22,242
|
|
|
$
|
118,625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
174,449
|
|
|
Savings, NOW and market rate
|
|
|
86,118
|
|
|
|
48,814
|
|
|
|
178,989
|
|
|
|
48,817
|
|
|
|
—
|
|
|
|
362,738
|
|
|
Time deposits
|
|
|
64,901
|
|
|
|
136,341
|
|
|
|
5,157
|
|
|
|
92
|
|
|
|
—
|
|
|
|
211,542
|
|
|
Wholesale deposits
|
|
|
95,086
|
|
|
|
41,536
|
|
|
|
14,324
|
|
|
|
—
|
|
|
|
—
|
|
|
|
120,761
|
|
|
Borrowed funds
|
|
|
2,496
|
|
|
|
17,617
|
|
|
|
122,724
|
|
|
|
12,102
|
|
|
|
—
|
|
|
|
154,939
|
|
|
Subordinated debt
|
|
|
15,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,000
|
|
|
Other liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,504
|
|
|
|
19,504
|
|
|
Shareholders’ equity
|
|
|
3,300
|
|
|
|
9,901
|
|
|
|
52,808
|
|
|
|
26,404
|
|
|
|
—
|
|
|
|
92,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
275,349
|
|
|
$
|
276,451
|
|
|
$
|
492,627
|
|
|
$
|
87,415
|
|
|
$
|
19,504
|
|
|
$
|
1,151,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets
|
|
$
|
432,076
|
|
|
|
96,582
|
|
|
|
425,694
|
|
|
|
106,787
|
|
|
|
—
|
|
|
|
1,061,139
|
|
|
Interest bearing liabilities
|
|
$
|
238,467
|
|
|
|
244,308
|
|
|
|
321,194
|
|
|
|
61,011
|
|
|
|
—
|
|
|
|
864,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference between interest earning assets and interest bearing liabilities
|
|
$
|
193,609
|
|
|
$
|
(147,726
|
)
|
|
$
|
104,500
|
|
|
$
|
45,776
|
|
|
$
|
—
|
|
|
$
|
196,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative difference between interest earning assets and interest bearing liabilities
|
|
$
|
193,609
|
|
|
$
|
45,863
|
|
|
$
|
150,383
|
|
|
$
|
196,159
|
|
|
$
|
—
|
|
|
$
|
196,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative earning assets as a % of cumulative interest bearing liabilities
|
|
|
181
|
%
|
|
|
110
|
%
|
|
|
119
|
%
|
|
|
123
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans include portfolio loans and leases and loans held for sale.
|
The table above indicates that the Corporation is asset neutral to slightly asset sensitive in the immediate to 90 day time frame and should experience an increase in
net interest income in the near term, if interest rates rise. Accordingly, if rates decline, net interest income will also decline.
9
Maturity of Certificates of Deposit of $100,000 or Greater at December 31, 2008
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Non-
Wholesale
|
|
Wholesale
|
|
Three months or less
|
|
$
|
54,984
|
|
$
|
60,133
|
|
Three to six months
|
|
|
26,069
|
|
|
16,891
|
|
Six to twelve months
|
|
|
34,343
|
|
|
—
|
|
Greater than twelve months
|
|
|
820
|
|
|
14,324
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
116,216
|
|
$
|
91,348
|
|
|
|
|
|
|
|
|
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 Management’s review and evaluation of the loan and lease portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and
conditions, and other pertinent factors, including Management’s assumptions as to future delinquencies, recoveries and losses.
Increases to the
allowance are implemented through a corresponding provision (expense) in the Corporation’s statement of income. Loans and leases deemed uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited
to the allowance.
While Management considers the allowance to be adequate based on information currently available, future additions to the allowance may
be necessary due to changes in economic conditions or Management’s assumptions as to future delinquencies, recoveries and losses and Management’s intent 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 Corporation’s allowance.
The Corporation’s 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 and lease portfolios are broken down into multiple homogenous subclassifications upon which multiple factors (such as
delinquency trends, economic conditions, loan terms, credit grade, state of origination, industry, other relevant information 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.
|
Asset Quality and Analysis of Credit Risk
Credit quality on the
overall loan and lease portfolio remains strong as total non-performing loans and leases of $5.8 million represents 65 basis points of portfolio loans and leases at December 31, 2008. This compares with 25 basis points or $2.0 million at
December 31, 2007 and 11 basis points or $823 thousand at December 31, 2006. The increase in the non-performing loans from $2.0 million to $5.8 million is primarily related to one collateralized residential multi-home construction project.
The Corporation is taking appropriate steps to minimize exposure on this loan.
The provision for loan and lease losses for the years ended
December 31, 2008, 2007 and 2006 was $5.6 million, $891 thousand and $832 thousand, respectively. At December 31, 2008, the allowance for loan and lease losses of $10.3 million represents 1.15% of portfolio loans and leases compared
with 1.01% at December 31, 2007 and 1.19% at December 31, 2006. The increase in the allowance as a percentage of portfolio loans and leases from the end of 2007 to the end of 2008 reflects weakness in the leasing portfolio over the
past four quarters, as this portfolio is national in scope. The balance of the Corporation’s loan portfolio is concentrated in the much better performing Montgomery, Chester and Delaware Counties of Pennsylvania.
The following list identifies certain key characteristics of the Corporation’s loan and lease portfolio:
|
|
•
|
|
Portfolio Loans
– The Corporation’s $840.3 million loan portfolio is based in the Corporation’s traditional market areas of Chester,
Delaware and Montgomery counties (Pennsylvania) and the greater Philadelphia area which have not experienced the hyper real estate price appreciation and subsequent decline that many areas around the country are experiencing. The Corporation has
observed a slow-down in new construction in the local area and some home value reductions, but has not seen a substantial impact on the Corporation’s loan quality ratios relative to the loan portfolio.
|
10
|
|
•
|
|
Concentrations
– The Corporation has a material portion of its loans (excluding leases) in real estate related loans. As of December 31, 2008,
loans secured by real estate were $708.3 million or 84.3% of the total loan portfolio of $840 million, which includes $595.3 million of real estate loans. Loans secured by real estate include approximately $113.0 million of commercial and
industrial loans.
|
A predominant percentage of the Corporation’s real estate exposure, both commercial and
residential, is in the Corporation’s primary trade area which includes portions of Delaware, Chester, Montgomery and Philadelphia counties in 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 borrower’s capacity to repay and equity in the underlying real estate collateral.
|
|
•
|
|
Construction
– Residential site development construction loans were $43.7 million at December 31, 2008, a decline from the $46.5 million at
December 31, 2007. The residential site development portfolio had a delinquency rate of 6.06% at December 31, 2008 primarily due to one large residential site developer. The Corporation has taken steps to minimize further risk on this
loan.
|
Commercial construction projects were $8.3 million at December 31, 2008, a decline from the $11 million
at December 31, 2007. The commercial construction portfolio has no delinquencies and most loans within this subcategory will convert to permanent mortgages in 2009.
Construction loans of individual houses were $6.5 million at December 31, 2008 and $10.5 million at December 31, 2007. This decrease is attributable to the completion of existing construction projects
and a lower level of new projects by the Corporation’s construction clients.
|
|
•
|
|
Non Traditional Loan Products
– The Corporation’s portfolio of loans and leases as reflected on the balance sheet includes $64.6 million of
first lien mortgage positions on one to four family residential loans that are interest only loans. At December 31, 2008, the total first lien interest only residential loans of $64.6 million included $54.0 million of adjustable rate loans that
convert to principal and interest payments between five and ten years after inception and $10.6 million of fixed rate loans that continue as interest only loans until reaching maturity. These fixed rate loans will remain as interest only loans until
maturity. While these loans are considered “non-traditional loan products,” Management does not consider these loans as having a higher risk since the underwriting standard and loan to value ratios are comparable to the remainder of the
loan portfolio.
|
|
|
•
|
|
Leasing
– The Corporation’s $59.3 million leasing portfolio is national in scope and consists of over 4,200 equipment financing leases to
customers in all 50 states with initial lease terms of 24 to 60 months and yields significantly higher than other loans in the Corporation’s portfolio. Approximately 71% of the Corporation’s leases are in 14 states with California being
the largest at approximately 14%.
|
Leasing portfolio balances at the end of 2008 were up $14.2 million to $59.3 million
from the $45.1 million in 2007. The rate of growth within the leasing portfolio has been intentionally slowed and tighter underwriting standards have been implemented over the past twelve months.
The Corporation has established an allocation of the overall reserve for leases as shown in the table on page [12] of $1.89 million which equates to
3.19% of lease balances. Net lease charge-offs in 2008 of $3.36 million (or 6.24% of average leases) reflect the maturation of the lease portfolio, the inherent riskier nature of the leasing business compared to the Corporation’s other
portfolio loans, and the impact of a struggling national economy.
11
Non-Performing Assets and Related Ratios as of December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Non-accrual loans and leases
|
|
$
|
5,303
|
|
|
$
|
747
|
|
|
$
|
704
|
|
|
$
|
261
|
|
|
$
|
1,353
|
|
|
Loans and leases 90 days or more past due
|
|
|
504
|
|
|
|
1,263
|
|
|
|
119
|
|
|
|
129
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and leases
|
|
|
5,807
|
|
|
|
2,010
|
|
|
|
823
|
|
|
|
390
|
|
|
|
1,375
|
|
|
Other real estate owned (“OREO”)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
5,807
|
|
|
$
|
2,010
|
|
|
$
|
823
|
|
|
$
|
415
|
|
|
$
|
1,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to non-performing assets
|
|
|
177.9
|
%
|
|
|
404.1
|
%
|
|
|
986.9
|
%
|
|
|
1,783.6
|
%
|
|
|
399.9
|
%
|
|
Allowance for loan and lease losses to non-performing loans
|
|
|
177.9
|
%
|
|
|
404.1
|
%
|
|
|
986.9
|
%
|
|
|
1,897.9
|
%
|
|
|
503.8
|
%
|
|
Non-performing loans to total loans and leases
|
|
|
0.65
|
%
|
|
|
0.25
|
%
|
|
|
0.12
|
%
|
|
|
0.07
|
%
|
|
|
0.25
|
%
|
|
Allowance for loan losses to total loans and leases
|
|
|
1.15
|
%
|
|
|
1.01
|
%
|
|
|
1.19
|
%
|
|
|
1.24
|
%
|
|
|
1.25
|
%
|
|
Non-performing assets to total assets
|
|
|
0.50
|
%
|
|
|
0.20
|
%
|
|
|
0.10
|
%
|
|
|
0.06
|
%
|
|
|
0.25
|
%
|
|
Net loan and lease charge-offs/average loans and leases
|
|
|
0.40
|
%
|
|
|
0.12
|
%
|
|
|
0.02
|
%
|
|
|
0.05
|
%
|
|
|
0.12
|
%
|
|
Net loan charge-offs/average loans
|
|
|
0.00
|
%
|
|
|
0.05
|
%
|
|
|
0.02
|
%
|
|
|
0.05
|
%
|
|
|
0.12
|
%
|
|
Net lease charge-offs/average leases
|
|
|
6.24
|
%
|
|
|
1.97
|
%
|
|
|
0.00
|
%
|
|
|
—
|
|
|
|
—
|
|
|
Period end portfolio loans and leases
|
|
$
|
899,577
|
|
|
$
|
802,925
|
|
|
$
|
681,291
|
|
|
$
|
595,165
|
|
|
$
|
555,889
|
|
|
Average loans and leases (average for year)
|
|
$
|
851,752
|
|
|
$
|
740,694
|
|
|
$
|
636,286
|
|
|
$
|
582,386
|
|
|
$
|
538,775
|
|
|
Allowance for loan and lease losses
|
|
$
|
10,332
|
|
|
$
|
8,124
|
|
|
$
|
8,122
|
|
|
$
|
7,402
|
|
|
$
|
6,927
|
|
Summary of Changes in the Allowance for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance, January 1
|
|
$
|
8,124
|
|
|
$
|
8,122
|
|
|
$
|
7,402
|
|
|
$
|
6,927
|
|
|
$
|
6,670
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(72
|
)
|
|
|
(396
|
)
|
|
|
(31
|
)
|
|
|
(158
|
)
|
|
|
(94
|
)
|
|
Commercial and industrial
|
|
|
(4
|
)
|
|
|
(41
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(167
|
)
|
|
Real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
(120
|
)
|
|
|
(156
|
)
|
|
|
(431
|
)
|
|
Leases
|
|
|
(3,540
|
)
|
|
|
(599
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(3,616
|
)
|
|
|
(1,036
|
)
|
|
|
(151
|
)
|
|
|
(314
|
)
|
|
|
(692
|
)
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
28
|
|
|
|
22
|
|
|
|
34
|
|
|
|
11
|
|
|
|
47
|
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
46
|
|
|
|
3
|
|
|
|
12
|
|
|
|
2
|
|
|
Real estate
|
|
|
24
|
|
|
|
15
|
|
|
|
2
|
|
|
|
4
|
|
|
|
—
|
|
|
Leases
|
|
|
176
|
|
|
|
64
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries
|
|
|
228
|
|
|
|
147
|
|
|
|
39
|
|
|
|
27
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(3,388
|
)
|
|
|
(889
|
)
|
|
|
(112
|
)
|
|
|
(287
|
)
|
|
|
(643
|
)
|
|
Provision for loan and lease losses
|
|
|
5,596
|
|
|
|
891
|
|
|
|
832
|
|
|
|
762
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
10,332
|
|
|
$
|
8,124
|
|
|
$
|
8,122
|
|
|
$
|
7,402
|
|
|
$
|
6,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
(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
|
|
$
|
3,093
|
|
26.3
|
%
|
|
$
|
2,636
|
|
26.4
|
%
|
|
$
|
2,161
|
|
25.7
|
%
|
|
$
|
2,191
|
|
28.5
|
%
|
|
$
|
3,575
|
|
33.1
|
%
|
|
Real estate – construction
|
|
|
1,061
|
|
6.5
|
|
|
|
850
|
|
8.3
|
|
|
|
950
|
|
11.0
|
|
|
|
569
|
|
7.6
|
|
|
|
741
|
|
6.6
|
|
|
Real estate – mortgage
|
|
|
4,154
|
|
59.7
|
|
|
|
3,727
|
|
58.7
|
|
|
|
4,448
|
|
60.9
|
|
|
|
4,141
|
|
62.3
|
|
|
|
806
|
|
58.5
|
|
|
Consumer
|
|
|
70
|
|
0.9
|
|
|
|
62
|
|
1.0
|
|
|
|
77
|
|
1.4
|
|
|
|
143
|
|
1.6
|
|
|
|
1,174
|
|
1.8
|
|
|
Leases
|
|
|
1,894
|
|
6.6
|
|
|
|
789
|
|
5.6
|
|
|
|
140
|
|
1.0
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
Unallocated
|
|
|
60
|
|
—
|
|
|
|
60
|
|
—
|
|
|
|
346
|
|
—
|
|
|
|
358
|
|
—
|
|
|
|
631
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,332
|
|
100
|
%
|
|
$
|
8,124
|
|
100
|
%
|
|
$
|
8,122
|
|
100
|
%
|
|
$
|
7,402
|
|
100.0
|
%
|
|
$
|
6,927
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
N
ON
-I
NTEREST
I
NCOME
2008 Compared to 2007
For the year ended December 31, 2008, non-interest income was $21.5 million, an increase of $1.1 million or 5.4% above the $21.8 million in 2007
(which includes a $1.3 million after tax gain on sale of real estate). The primary factors for this increase were a $268 thousand gain on the sale of an interest rate floor in January 2008 and Wealth Management revenue of $13.8 million
which was $340 thousand or 2.5% higher than 2007. The increase in Wealth Management fee revenue is attributable to the Lau Associates acquisition, as organic fees for wealth management services were reduced due to the decline in financial market
valuations and the loss of an institutional client in November 2007 due to a business consolidation which accounted for $580 thousand of revenue in 2007.
It should be noted that Lau Associates revenues are on a flat fee basis, not on a percentage of assets under management, as are much of traditional wealth revenues.
2007 Compared to 2006
For the year ended December 31, 2007, non-interest income was $21.8 million, an
increase of $3.4 million or 18.6% from the $18.4 million in 2006. The primary factors for this increase were the $1.3 million real estate gain on the sale of the Wynnewood property and Wealth Management revenue of $13.5 million which
was $1.1 million or 8.7% higher than 2006. The increase in Wealth Management fee revenue was partially due to market appreciation, increased brokerage fee revenue, a fall 2007 minimum fee increase and increased assets and related revenue from
an institutional client. The balance of the increase in non-interest income was due primarily to income from bank owned life insurance (“BOLI”) acquired in May 2007, stronger mortgage loan sale revenue and a gain on the sale of other
real estate owned.
Wealth Management revenues for the years ended December 31, 2007 and 2006 include $580 thousand and $403 thousand, respectively,
of fees not earned in 2008 relating to one institutional client that was acquired by another financial institution in a business combination on November 16, 2007. Wealth assets under Management and Administration relating to this client were
approximately $412.4 million at December 31, 2006 and zero at December 31, 2007.
N
ON
-I
NTEREST
E
XPENSE
2008 Compared to 2007
For the year ended December 31, 2008, non-interest expense was $38.7 million, an increase of $3.7 million or 10.6% over the
$35.0 million in the same period in 2007. Primary factors contributing to this increase include a $647 impairment of mortgage servicing assets from a year ago due to the rapid decline of long-term mortgage rates, FDIC insurance costs rising
$391 thousand or 483% from 2007 and personnel and related support costs associated with the acquisition of Lau Associates, the opening of the Corporation’s West Chester regional banking center, and the opening of The Bryn Mawr Trust Company of
Delaware. Non-interest expenses in 2008 included approximately $135 thousand of expenses related to potential acquisitions that did not materialize and $141 thousand of amortization of intangible assets related to the Lau Associates
acquisition.
2007 Compared to 2006
For the year ended
December 31, 2007, non-interest expense was $35.0 million, an increase of $3.5 million or 11.3% over the $31.4 million in the same period in 2006. Personnel and related support costs associated with the new business initiatives,
advertising costs, and professional and consulting fees were the primary contributors to this increase in non-interest expenses. Non-interest expenses in 2007 included approximately $350 thousand in personnel, professional and other costs that are
not ongoing commitments.
I
NCOME
T
AXES
Income taxes for the year ended December 31, 2008 were
$5.0 million compared to $6.6 million in 2007 and $6.7 million in 2006. The effective tax rate was 34.96% in 2008, 32.58% in 2007 and 34.47% in 2006. The increase in the effective tax rate in 2008 was due to a decrease in tax free
income related to the surrender of the BOLI insurance contract in 2008, state income taxes, and other smaller items.
Income taxes for the year ended
December 31, 2007 were $6.6 million compared to $6.7 million in 2006 and $5.9 million in 2005. The effective tax rate was 32.6% in 2007, 34.5% in 2006 and 34.3% in 2005. The decrease in the effective tax rate in 2007 was due to an increase
in tax-free income and other smaller items. The tax rates for 2006 and 2005 were relatively unchanged.
B
ALANCE
S
HEET
A
NALYSIS
Asset Changes
Total assets increased $149.3 million or 14.9% from $1.0 billion as of December 31, 2007 to $1.2 billion as of December 31, 2008.
The growth in total portfolio loans and leases of $96.7 million to $899.6 million, and an increase of $60 million in investment securities are the major factors contributing to the increase. Partially offsetting the increase in portfolio loans
and leases and investments is a decrease in cash and cash equivalents of $26.2 million from $95.2 million at December 31, 2007 to $69.0 million at December 31, 2008, primarily due to higher short-term cash inflows in the fourth
quarter of 2007.
13
The Corporation’s investment portfolio increased to $108.3 million at December 31, 2008 from $48.3 million
at December 31, 2007. The Asset and Liability Committee (“ALCO”) decided that increasing the investment portfolio to approximately 10% of total assets, and maintaining this level, will improve liquidity and provide the Corporation the
opportunity to borrow additional funds through the Federal Home Loan Bank of Pittsburgh (“FHLB-P”), Federal Reserve or other repurchase agreements. On December 31, 2008, the value of the Corporation’s investment security
portfolio was $108.3 million compared with its amortized cost of $107.3 million.
The Corporation increased portfolio loans and leases in 2008 by 12.0% or
$96.7 million to $899.6 million at December 31, 2008. The increase in loan volume during 2008 was concentrated in home equity lines and loans of $31.3 million or 25.4%, commercial mortgages which increased $25.2 million or 11.2%, and
commercial and industrial loans which increased $22.6 million or 10.6% as loan demand remained strong. Leases increased $14.2 million from $45.1 million at December 31, 2007 to $59.3 million at December 31, 2008.
Management’s intent is to have the leasing portfolio in 2009 remain constant or trend slightly downward.
Demand for high-quality loans remained
consistent throughout 2008 although we are beginning to see the effects of the weakening economy both in the quantity and quality of lending opportunities. Reductions in the construction loan portfolio over the past 12 months reflect the conversion
of completed projects to permanent status and the intentional scale-back of new construction projects by our residential home building customers.
Additionally in 2008, premises and equipment assets increased approximately $4 million due to branch expansion and the opening of The Bryn Mawr Trust Company of Delaware. The $10 million increase in goodwill and intangible assets is due to
the purchase of Lau Associates.
Investment Portfolio
A maturity breakout of the investment portfolio by investment type at December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Maturing
During
2009
|
|
|
Maturing
From
2010
Through
2013
|
|
|
Maturing
From
2014
Through
2018
|
|
|
Maturing
After
2018
|
|
|
Total
|
|
|
Obligations of the U.S. Government and agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value
|
|
$
|
—
|
|
|
$
|
10,999
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,999
|
|
|
Weighted average yield
|
|
|
—
|
|
|
|
3.05
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
3.05
|
%
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value
|
|
$
|
—
|
|
|
$
|
3,275
|
|
|
$
|
2,117
|
|
|
$
|
1,679
|
|
|
$
|
7,071
|
|
|
Weighted average yield
|
|
|
—
|
|
|
|
3.15
|
%
|
|
|
3.48
|
%
|
|
|
3.84
|
%
|
|
|
3.41
|
%
|
|
Corporate bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value
|
|
$
|
—
|
|
|
$
|
7,633
|
|
|
$
|
2,548
|
|
|
$
|
—
|
|
|
$
|
10,181
|
|
|
Weighted average yield
|
|
|
—
|
|
|
|
4.73
|
%
|
|
|
5.38
|
%
|
|
|
—
|
|
|
|
5.27
|
%
|
|
Other investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value
|
|
$
|
350
|
|
|
$
|
600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
950
|
|
|
Weighted average yield
|
|
|
3.21
|
%
|
|
|
4.54
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
4.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal book value
|
|
$
|
350
|
|
|
$
|
22,507
|
|
|
$
|
4,665
|
|
|
$
|
1,679
|
|
|
$
|
29,201
|
|
|
Weighted average yield
|
|
|
3.21
|
%
|
|
|
3.67
|
%
|
|
|
4.52
|
%
|
|
|
3.84
|
%
|
|
|
3.81
|
%
|
|
Mortgage backed securities
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,667
|
|
|
$
|
71,387
|
|
|
$
|
78,054
|
|
|
Weighted average yield
|
|
|
—
|
|
|
|
—
|
|
|
|
5.25
|
%
|
|
|
5.17
|
%
|
|
|
5.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total book value
|
|
$
|
350
|
|
|
$
|
22,507
|
|
|
$
|
11,332
|
|
|
$
|
73,066
|
|
|
$
|
107,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield
|
|
|
3.21
|
%
|
|
|
3.67
|
%
|
|
|
4.95
|
%
|
|
|
5.14
|
%
|
|
|
4.80
|
%
|
|
1
|
Mortgage backed securities are included in the above table based on their contractual maturity. However, mortgage
backed securities, by design, have scheduled monthly principle payments which may accelerate.
|
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)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Consumer
|
|
$
|
8,518
|
|
$
|
7,990
|
|
$
|
9,156
|
|
$
|
9,437
|
|
$
|
10,291
|
|
Commercial & Industrial
|
|
|
236,469
|
|
|
213,834
|
|
|
175,278
|
|
|
170,283
|
|
|
186,923
|
|
Commercial Mortgage
|
|
|
249,730
|
|
|
224,510
|
|
|
198,407
|
|
|
162,621
|
|
|
137,141
|
|
Construction
|
|
|
58,446
|
|
|
66,901
|
|
|
74,798
|
|
|
45,523
|
|
|
36,941
|
|
Residential Mortgage
|
|
|
132,536
|
|
|
121,313
|
|
|
103,572
|
|
|
99,602
|
|
|
75,081
|
|
Home Equity Lines & Loans
|
|
|
154,576
|
|
|
123,293
|
|
|
113,068
|
|
|
107,699
|
|
|
109,512
|
|
Leases
|
|
|
59,302
|
|
|
45,084
|
|
|
7,012
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Loans and Leases
|
|
|
899,577
|
|
|
802,925
|
|
|
681,291
|
|
|
595,165
|
|
|
555,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
3,024
|
|
|
5,125
|
|
|
3,726
|
|
|
2,765
|
|
|
8,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
902,601
|
|
$
|
808,050
|
|
$
|
685,017
|
|
$
|
597,930
|
|
$
|
564,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Maturing
During
2009
|
|
Maturing
From
2010
Through
2013
|
|
Maturing
After
2013
|
|
Total
|
|
Loan Portfolio Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
108,479
|
|
$
|
80,324
|
|
$
|
47,666
|
|
$
|
236,469
|
|
Construction
|
|
|
49,457
|
|
|
8,989
|
|
|
—
|
|
|
58,446
|
|
Commercial mortgage
|
|
|
1,707
|
|
|
61,082
|
|
|
186,941
|
|
|
249,730
|
|
Leases
|
|
|
1,755
|
|
|
57,521
|
|
|
26
|
|
|
59,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
161,398
|
|
$
|
207,916
|
|
$
|
234,633
|
|
$
|
603,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest sensitivity on the above loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with predetermined rates
|
|
$
|
20,696
|
|
$
|
165,840
|
|
$
|
72,669
|
|
$
|
259,205
|
|
Loans with adjustable or floating rates
|
|
|
140,702
|
|
|
42,076
|
|
|
161,964
|
|
|
344,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
161,398
|
|
$
|
207,916
|
|
$
|
234,633
|
|
$
|
603,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Changes
Total liabilities increased $147.2 million or 16.1% from $911.7 million as of December 31, 2007 to $1.06 billion as of December 31, 2008. Funding from wholesale sources at December 31, 2008 included approximately
$120.8 million in wholesale certificates of deposit and $154.9 million in FHLB-P borrowings ($275.7 million in total). This compares with approximately $129.8 million and $45.0 million in wholesale certificates and FHLB-P
borrowings, respectively, at December 31, 2007 ($174.8 million in total). The increase in total wholesale funding of $100.9 million in 2008 was primarily used to fund portfolio loan and lease growth and investment portfolio growth. Average
other deposits (total deposits less wholesale certificates of deposit) for 2008 increased 6.1% or $37.8 million to $653.9 million compared with $616.1 million for 2007. See paragraph 3 of the Liquidity section for further details on the
Corporation’s FHLB-P borrowing capacity and availability.
During 2008, the Corporation successfully attracted new core deposit balances in savings,
NOW and market rate accounts. The balance as of December 31, 2008 was $332.6 million, an increase of 15.5% from December 31, 2007.
The Bank
raised an aggregate of $15 million in subordinated debt in July and August 2008. The subordinated debt has a floating interest rate which resets quarterly at 90 day LIBOR plus 3.75%, which was 5.75% at December 31, 2008, has a maturity of 10
years and can be prepaid at the end of five years with no prepayment penalty. See Note 10 Subordinated Debt in the Notes to Consolidated Financial Statements for additional information.
Deposits
A breakdown of the deposits by major categories at December 31 for each of the last five years is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Interest-bearing checking
|
|
$
|
135,513
|
|
$
|
137,486
|
|
$
|
143,742
|
|
$
|
154,319
|
|
$
|
166,901
|
|
Money market
|
|
|
142,707
|
|
|
114,310
|
|
|
111,338
|
|
|
112,319
|
|
|
126,058
|
|
Savings
|
|
|
54,333
|
|
|
36,181
|
|
|
40,441
|
|
|
46,258
|
|
|
50,300
|
|
IND deposits
|
|
|
30,185
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wholesale deposits
|
|
|
120,761
|
|
|
129,820
|
|
|
19,976
|
|
|
5,000
|
|
|
—
|
|
Time deposits
|
|
|
211,542
|
|
|
203,462
|
|
|
200,446
|
|
|
150,322
|
|
|
110,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
695,041
|
|
$
|
621,259
|
|
$
|
515,943
|
|
$
|
468,218
|
|
$
|
453,729
|
|
Non-interest bearing deposits
|
|
|
174,449
|
|
|
228,269
|
|
|
198,546
|
|
|
168,042
|
|
|
147,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
869,490
|
|
$
|
849,528
|
|
$
|
714,489
|
|
$
|
636,260
|
|
$
|
600,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Detailed segment information appears in Note 26 in the accompanying Consolidated Financial Statements.
Residential Mortgage Segment Activity
All activity is for the year
unless noted otherwise:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Residential loans held in portfolio*
|
|
$
|
132,536
|
|
|
$
|
121,313
|
|
|
$
|
103,75252
|
|
|
Mortgage originations
|
|
|
109,219
|
|
|
|
127,611
|
|
|
|
127,307
|
|
|
Mortgage loans sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing retained
|
|
$
|
43,575
|
|
|
$
|
24,300
|
|
|
$
|
20,910
|
|
|
Servicing released
|
|
|
34,259
|
|
|
|
64,466
|
|
|
|
46,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans sold
|
|
$
|
77,834
|
|
|
$
|
88,766
|
|
|
$
|
67,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of mortgage loans sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing retained %
|
|
|
56.0
|
%
|
|
|
27.4
|
%
|
|
|
30.9
|
%
|
|
Servicing released %
|
|
|
44.0
|
%
|
|
|
72.6
|
%
|
|
|
69.1
|
%
|
|
Loans serviced for others*
|
|
$
|
350,199
|
|
|
$
|
357,363
|
|
|
$
|
382,141
|
|
|
Mortgage servicing rights*
|
|
$
|
2,205
|
|
|
$
|
2,820
|
|
|
$
|
2,883
|
|
|
Gain on sale of loans
|
|
$
|
1,275
|
|
|
$
|
1,250
|
|
|
$
|
954
|
|
|
Loans servicing & late fees
|
|
$
|
1,194
|
|
|
$
|
1,115
|
|
|
$
|
1,126
|
|
|
Amortization of MSRs
|
|
$
|
367
|
|
|
$
|
327
|
|
|
$
|
348
|
|
|
Impairment of MSRs
|
|
$
|
668
|
|
|
$
|
21
|
|
|
$
|
14
|
|
|
Basis point gain on loans sold
|
|
|
164
|
|
|
|
141
|
|
|
|
141
|
|
The Mortgage Banking segment had a pre-tax
segment loss (“PTSL”) of $198 thousand in 2008 compared with a pre-tax segment profit (“PTSP”) of $555 thousand in 2007. This change is primarily due to the impairment of mortgage servicing rights which increased $647 thousand
due to lower rates at the end of 2008.
15
Mortgage originations in 2008 of $109.2 million were down from a year ago and 2006. The value of mortgages sold
(servicing retained and servicing released) in 2008 of $77.8 million was 12.3% lower than those sold in 2007. However, the gain on sale of loans in 2008 of $1.28 million was 2.0% higher than the gain on sale of loans in 2007 (as the gain per
loan sold of 164 basis points was 23 basis points higher from 2007 and 2006). Management expects mortgage originations in 2009 to be higher than 2008 due to the reduction in interest rates at the end of 2008.
Loans serviced for others have declined respectively from $382.1 million to $357.4 million to $350.2 million at the end of 2006, 2007 and 2008.
Wealth Segment Activity
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2008
|
|
2007
|
|
2006
|
|
Brokerage assets
|
|
$
|
75.7
|
|
$
|
85.3
|
|
$
|
76.3
|
|
Assets under management – other institutions
|
|
|
—
|
|
|
—
|
|
|
412.4
|
|
Wealth assets under management, and supervision (Lau)
|
|
|
506.6
|
|
|
—
|
|
|
—
|
|
Wealth assets under management and administration (BMTC)
|
|
|
1,564.1
|
|
|
2,191.8
|
|
|
2,102.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wealth assets under management, administration, brokerage and supervision
|
|
$
|
2,146.4
|
|
$
|
2,277.1
|
|
$
|
2,591.1
|
|
|
|
|
|
|
|
|
|
|
|
The Wealth Management segment reported a 2008 PTSP of $5.5 million, an 18% or a $1.2 million decrease over
2007. The decrease in PTSP was primarily due to a $1.5 million or 22% increase in Wealth Management overall expense, partially offset by a $353 thousand or 2.6% increase in revenue. The increase in Wealth revenue is attributable to the Lau
Associates acquisition, as organic fees for Wealth Management services were reduced due to the decline in financial market valuations and the loss of an institutional client in November 2007 due to a business consolidation.
Total wealth assets under management, administration and brokerage fell $130.7 million from 2007 levels, as the Lau Associates acquisition helped offset the organic
wealth management decline. It is expected that the acquisition will help the Corporation grow wealth assets under management and supervision, grow non-interest income and expand our footprint in the State of Delaware.
The Wealth Management segment reported a 2007 PTSP of $6.7 million, an 11.4% or $683 thousand increase over 2006. The increase in PTSP was primarily due to a
$1.1 million or 8.7% increase in Wealth Management revenue, partially offset by a $397 thousand or 6.0% increase in expenses, primarily personnel related. The increase in Wealth revenue is attributable to market appreciation, increased assets
under management and revenue from an institutional client, increased brokerage revenue and a fall 2007 minimum fee increase.
Banking Segment Activity
Banking segment data as presented in Note 26 in the accompanying Notes to Consolidated Financial Statements indicates a PTSP of $9.9 million in 2008,
$13.6 million in 2007, which includes a $1.33 million gain on real estate, and $13.0 million in 2006. See Components of Net Income earlier in this documentation for a discussion of the Banking Segment.
C
APITAL
Consolidated shareholder’s equity of the Corporation was $92.4 million or 8.03% of total assets as of December 31, 2008 compared to $90.4 million or
9.02% of total assets as of December 31, 2007. The decline of 99 basis points is primarily the result of asset growth.
The Bank raised an aggregate
of $15 million in subordinated debt in July and August 2008 to support organic loan growth, and to offset the impact on regulatory capital from the Lau Associates acquisition.
The Corporation’s and Bank’s regulatory capital ratios and the minimum capital requirements to be considered “Well Capitalized” by banking regulators are displayed in Note 23 of the accompanying
Notes to Consolidated Financial Statements.
As disclosed earlier in this document, the Corporation elected not to participate in the Federal
government’s Troubled Asset Relief Program (“TARP”) for several reasons, the most significant being the strong capital position of the Corporation and the Bank, and the uncertainty surrounding the constantly changing conditions of the
program. 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.
During 2008 and 2007, the Corporation repurchased $361 thousand and $2.4 million in common stock representing 18,371 and 101,403 shares at an average cost of $19.68 and $23.85, respectively. However, the Corporation’s last
direct stock market buy back was on May 23, 2008.
Under the terms of the Lau Associates acquisition, the Corporation has three additional earn-out
payments due in the first quarter of each of 2010, 2011 and 2012 (which will each be recorded at the end of 2009, 2010, and 2011), with the maximum purchase price not exceeding $19 million ($10 million already paid). As a result of these
expected future payments and expected asset growth, the
16
Corporation is presently evaluating several methods of raising capital to maintain its well capitalized levels without impeding earning asset growth.
Possible methods might include a dividend reinvestment and stock repurchase plan, additional subordinated debt, and/or other possible transactions.
See
Note 1-U in the Notes to Consolidated Financial Statements for additional information.
L
IQUIDITY
The Corporation manages its liquidity position on a daily basis as
part of the daily settlement function and on a monthly basis as part of the asset liability management process. The Corporation’s primary liquidity is maintained by managing its deposits along with the utilization of purchased federal funds,
borrowings from the FHLB-P and utilization of other wholesale funding sources. Secondary sources of liquidity include the sale of investment securities and certain loans in the secondary market.
Other wholesale funding sources include certificates of deposit from brokers, generally available in blocks of $1.0 million or more, CDARS, PLGIT and the IND
Program which grew $30 million in 2008.
Maximum borrowing capacity with the FHLB-P as of December 31, 2008 was approximately $345 million, with an
unused borrowing availability of approximately $142 million. Availability at the Federal Reserve was $9 million and additionally, in the first quarter of 2009, the Bank pledged approximately $110 million of commercial and industrial loans to the
Federal Reserve’s discount window program providing an additional approximate $80 million of borrowing capacity. Overnight Fed Funds lines consist of lines from 6 banks totaling $75 million. Quarterly, ALCO reviews the Corporation’s
liquidity needs and reports its findings to the Risk Management Committee of the Board of Directors.
On December 31, 2008, the FHLB-P voluntarily
suspended its dividend and capital stock repurchase program until further notice due to earnings and investment issues. The Bank has an $8 million investment in FHLB-P stock that currently does not earn a dividend and cannot be redeemed. The Bank
earned $186 thousand on this stock in 2008, which was recorded in other income. Management is monitoring this situation closely. While this situation will not restrict the Corporation’s usage of the FHLB-P for borrowings, it will increase the
cost. The Federal Reserve’s Discount Window is more attractive, but product availability at the Federal Reserve is less flexible.
The
Corporation’s investment portfolio of $108.3 million at December 31, 2008 is approximately 9.4% of total assets. The Corporation’s policy is to keep the investment portfolio at approximately 10% of total assets. The investment
portfolio provided the Corporation with the opportunity to utilize the securities to borrow additional funds through the FHLB-P, Federal Reserve or through other repurchase agreements.
The Corporation continually evaluates the capacity and the cost of continuing to fund earning asset growth with wholesale deposits. The Corporation believes that it has sufficient capacity to fund expected 2009
earning asset growth with wholesale sources, along with deposit growth from the newly opened West Chester regional branch and deposit inflows from troubled institutions.
The Corporation elected to participate (i.e. did not opt out of) the FDIC’s additional deposit insurance program originally covering balances up to $250 thousand and then providing additional coverage over $250
thousand. After final adjustments in January 2009, this program now covers the following: all non-interest bearing DDA accounts; NOW accounts paying less than 50 basis points; interest on lawyer trust accounts (“IOLTA”); and certain trust
sweep accounts. The Corporation will pay additional FDIC insurance through December 31, 2009 when this program is scheduled to expire.
O
FF
B
ALANCE
S
HEET
R
ISK
The following chart presents the off-balance sheet commitments of the Bank as of December 31, 2008, 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
|
|
$
|
298,152
|
|
$
|
179,571
|
|
$
|
47,374
|
|
$
|
7,144
|
|
$
|
64,063
|
|
Standby letters of credit
|
|
|
20,216
|
|
|
8,914
|
|
|
1,026
|
|
|
10,276
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
318,368
|
|
$
|
188,485
|
|
$
|
48,400
|
|
$
|
17,420
|
|
$
|
64,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
17
Estimated fair values of the Corporation’s off-balance sheet instruments are based on fees and rates currently
charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Collateral requirements for off-balance sheet items are generally based upon the same standards
and policies as booked loans. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet instruments.
C
ONTRACTUAL
C
ASH
O
BLIGATIONS
OF
THE
C
ORPORATION
AS
OF
D
ECEMBER
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
Within 1
Year
|
|
2 - 3
Years
|
|
4 - 5
Years
|
|
After 5
Years
|
|
Deposits without a stated maturity
|
|
$
|
537,187
|
|
$
|
537,187
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Wholesale and retail certificates of deposit
|
|
|
332,303
|
|
|
312,729
|
|
|
19,207
|
|
|
275
|
|
|
92
|
|
Operating leases
|
|
|
21,834
|
|
|
1,334
|
|
|
2,523
|
|
|
2,132
|
|
|
15,845
|
|
Purchase obligations
|
|
|
5,913
|
|
|
1,856
|
|
|
2,839
|
|
|
1,218
|
|
|
—
|
|
Non-discretionary pension contributions
|
|
|
131
|
|
|
131
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
897,368
|
|
$
|
853,237
|
|
$
|
24,569
|
|
$
|
3,625
|
|
$
|
15,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O
THER
I
NFORMATION
New Offices
The Corporation successfully opened its West Chester regional banking center and The Bryn Mawr Trust Company of Delaware in 2008. The West Chester PA regional banking
center is a conveniently located, state-of-the-art 4,000 foot facility with a multi-lane drive-up and twenty-four hour ATM banking. Also during the year, the Corporation completed a significant renovation of its Wayne, PA branch, making the branch
much more visible and enhancing its ability to attract new business. The Bryn Mawr Trust Company of DE allows the Corporation to serve as a corporate fiduciary under DE statutes and provides a competitive advantage of being able to serve as a
corporate fiduciary under either DE or PA statutes. This is very appealing to trust and estate attorneys. These openings expanded the Corporation’s footprint into two attractive geographic markets and further diversify our products and client
base into the affluent markets in each target.
Regulatory Matters and Pending Legislation
Management is not aware of any other current specific recommendations by regulatory authorities or proposed legislation which, if implemented, would have a material
adverse effect upon the liquidity, capital resources, or results of operations, however 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
Corporation’s results of operations.
In February 2006, Congress passed the Federal Deposit Insurance Reform Act of 2005 (FDIRA-2005”). This
legislation will: (i) merge the Bank Insurance Fund and the Savings Association Insurance Fund into one fund; (ii) increase insurance coverage for retirement accounts to $250,000; (iii) adjust the maximum deposit insurance for
inflation after March 31, 2010; and (iv) give the FDIC greater flexibility in setting insurance assessments. As part of the FDIRA-2005, the Corporation’s primary operating subsidiary, the Bank, was granted a one-time credit of
approximately $409 thousand for utilization against future FDIC insurance premiums.
The FDIC announced that 2008 assessments would range from 5 to 7 basis
points for well capitalized institutions with composite regulatory examination ratings of one or two. This base assessment will increase again effective January 1, 2009 by 7 basis points. These increases bring the January 1, 2009 base
assessment rate to between 12 and 16 basis points. The Corporation may be subject to additional adjustments of up to 8 basis points depending on its level of unsecured and secured borrowings effective April 1, 2009 based on final FDIC rules
regarding ongoing assessment which were issued on February 27, 2009.
On February 27, 2009 the FDIC adopted an interim rule imposing a 20 basis
point emergency special assessment on the banking industry on June 30, 2009. The assessment is to be collected on September 30, 2009. The interim rule would also permit the FIDC to impose an emergency special assessment after June 30,
2009 of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance. Comments on the interim rule on special assessments are due no later than 30 days after publication in the Federal Register. A special assessment
of 20 basis points would amount to approximately $1.74 million based on December 31, 2008 deposits of approximately $869 million.
In October 2008,
the FDIC announced its TLGP pursuant to which the FDIC will guarantee the payment of certain newly-issued senior unsecured debt of insured depository institutions (“Debt Guarantee”) and funds held at FDIC-insured depository institutions in
noninterest-bearing transaction accounts in excess of the current standard maximum deposit insurance amount of $250,000 (“Transaction Account Guarantee”). Both guarantees were provided to eligible institutions, including the Corporation,
at no cost through December 5, 2008. Participation in the TLPG subsequent to December 5, 2008 is optional.
The Corporation has elected to
participate in the TLPG subsequent to December 5, 2008. The Transaction Account Guarantee is effective for the Corporation through January 1, 2010. Under the Debt Guarantee, qualifying senior unsecured debt newly issued by the Corporation
during the period from October 14, 2008 to June 30, 2009, inclusive, is covered by the FDIC guarantee. The maximum amount of debt that eligible institutions can issue under the guarantee is 125% of the par value of the entity’s
qualifying
18
senior unsecured debt, excluding debt to affiliates that was outstanding as of September 30, 2008, and scheduled to mature by June 30, 2009. The
FDIC will provide guarantee coverage until the earlier of the eligible debt’s maturity or June 30, 2012.
The Corporation utilized $365 thousand
of the one-time credit in 2007 and the remaining $44 thousand in the first quarter of 2008. FDIC expense incurred in 2008 was $472 thousand. The 2009 FDIC expense which will include the increase announced in 2008 and the impact of its TLGP is
estimated to be $1.4 million, excluding any special assessments. The estimate of approximately $1.4 million of FDIC expense is based on Management’s preliminary analysis of the FDIC’s February 27, 2009 final rule regarding on-going
assessments.
Participants in the Debt Guarantee Program will be assessed an annualized fee of 75 basis points for its participation, and an
annualized fee of 10 basis points for its participation in the Transaction Account Guarantee. To the extent that these initial assessments are insufficient to cover the expense or losses arising under TLPG, the FDIC is required to impose an
emergency special assessment on all FDIC-insured depository institutions as prescribed by the Federal Deposit Insurance Act.
Recent market conditions have
made it difficult or uneconomical to access the capital markets. As a result, the United States Congress, the Treasury, and the FDIC have announced various programs designed to enhance market liquidity and bank capital.
In response to the financial crisis affecting the banking system and financial markets, on October 3, 2008, the Emergency Economic Stabilization Act of 2008
(“EESA”) was signed into law and established the Troubled Assets Relief Program (“TARP”) administered by the U.S. Treasury Department. As part of TARP, the Treasury established the Capital Purchase Program (“CPP”) to
provide up to $700 billion of funding to eligible financial institutions through the purchase of capital stock and other financial instruments for the purpose of stabilizing and providing liquidity to the U.S. financial markets. In
connection with EESA, there have been numerous actions by the Federal Reserve Board, Congress, the Treasury, the FDIC, the SEC and others to further the economic and banking industry stabilization efforts under EESA. It remains unclear at this time
what further legislative and regulatory measures will be implemented under EESA affecting the Corporation.
As a further response to the economic crisis,
President Obama signed into law on February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs
intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients
until they have repaid the Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.
Effects of Inflation
Inflation has some impact on the
Corporation’s operating costs. Unlike many industrial companies, however, substantially all of the Corporation’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the
Corporation’s performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.
Effect of Government Monetary Policies
The earnings of the
Corporation are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and
interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying
combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect rates charged on loans or paid for deposits.
The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a significant effect on its deposits, loans and investment growth, as well as
the rate of interest earned and paid, and are expected to affect the Corporation’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot be predicted.
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’s Discussion and Analysis of Financial Condition and Results of Operations, in various sections detailed as follows:
“Net Interest Income”– Rate Volume Analysis of Interest Rates and Interest Differential, Net Interest Income and Net Interest Margin 2008 Compared to
2007, and – 2007 Compared to 2006, Net Interest Margin Over the Last Five Quarters, Interest Rate Sensitivity, Summary Interest Rate Simulation, and Gap Report; “Provision for Loan and Lease Losses” – General Discussion of
Allowance for Loan and Lease Losses, Asset Quality and Analysis of Credit Risk, Non-Performing Assets and Related Ratios, Summary of
19
Changes in the Allowance of Loan and Lease Losses, Allocation of Allowance for Loan and Lease Losses; “Non-Interest Income; “Non-Interest
Expense”; “Income Taxes”; “Balance Sheet Analysis”; “Discussion of Segments”; “Capital”; “Liquidity”; “Off Balance Sheet Risk”; “Contractual Cash Obligation of the Corporation as
of December 31, 2008”; and “Other Information.”
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 Corporation’s 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
Corporation’s 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 Corporation’s interest rate risk exposure and credit risk;
|
|
|
•
|
|
changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets;
|
|
|
•
|
|
changes in Federal, State and local tax laws, regulations and judicial decisions;
|
|
|
•
|
|
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 Corporation’s 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. Government’s response to those events including the war
in Iraq);
|
|
|
•
|
|
the Corporation’s success in continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted
markets and generating a profit in those markets in a reasonable time;
|
|
|
•
|
|
the Corporation’s ability to continue to generate investment results for customers and the ability to continue to develop investment products in a manner that
meets customer’s needs;
|
|
|
•
|
|
the Corporation’s success in and timely development of competitive new products and services in a changing environment and the acceptance of such products and
services by customers;
|
|
|
•
|
|
the Corporation’s ability to originate, sell and service residential mortgage loans;
|
|
|
•
|
|
the accuracy of assumptions underlying the establishment of reserves for loan losses and estimates in the value of collateral, the market value of mortgage
servicing rights and various financial assets and liabilities;
|
|
|
•
|
|
technological changes being more difficult or expensive than anticipated;
|
|
|
•
|
|
the Corporation’s success in managing the risks involved in the foregoing.
|
All written or oral forward-looking statements attributed to the corporation are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this
report are based upon information presently available, and the corporation assumes no obligation to update any forward-looking statement.
20
Management’s Report on Internal Control over Financial Reporting
The Corporation’s Management is responsible for both establishing and maintaining adequate internal controls over financial reporting. As of December 31, 2008,
Management conducted an assessment of the effectiveness of the Corporation’s 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, 2008, the Corporation’s
internal control over financial reporting is effective, based on the COSO criteria.
Management’s assessment of the effectiveness of the
Corporation’s internal control over financial reporting as of December 31, 2008 has been audited by KPMG LLP, (“KPMG”) the Corporation’s independent registered public accounting firm having responsibility for auditing
the Corporation’s financial statements. KPMG has expressed an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2008.
21
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, 2008 and 2007, 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, 2008. These
consolidated financial statements are the responsibility of the Corporation’s 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, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
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.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 13, 2009 expressed an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting.
|
|
|
|
Philadelphia, Pennsylvania
|
|
March 13, 2009
|
22
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Bryn Mawr Bank
Corporation:
We have audited the internal control over financial reporting of Bryn Mawr Bank Corporation and subsidiaries (the Corporation) as of
December 31, 2008, based on criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Corporation’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting
. Our responsibility is to express an opinion on the Corporation’s 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, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria
established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also
have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Corporation as of December 31, 2008 and 2007, 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, 2008, and our report dated March 13, 2009 expressed an unqualified opinion on those
consolidated financial statements.
|
|
|
|
|
Philadelphia, Pennsylvania
|
|
March 13, 2009
|
23
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(dollars in thousands,
except share and per share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
18,776
|
|
|
$
|
76,965
|
|
|
Interest bearing deposits with banks
|
|
|
45,100
|
|
|
|
1,209
|
|
|
Federal funds sold
|
|
|
—
|
|
|
|
17,000
|
|
|
Money market funds
|
|
|
5,109
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
68,985
|
|
|
|
95,274
|
|
|
Investment securities available for sale, at fair value (amortized cost of $107,255 and $48,136 as of December 31, 2008 and 2007,
respectively)
|
|
|
108,329
|
|
|
|
48,302
|
|
|
Loans held for sale
|
|
|
3,024
|
|
|
|
5,125
|
|
|
Portfolio loans and leases
|
|
|
899,577
|
|
|
|
802,925
|
|
|
Less: Allowance for loan and lease losses
|
|
|
(10,332
|
)
|
|
|
(8,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net portfolio loans and leases
|
|
|
889,245
|
|
|
|
794,801
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
21,296
|
|
|
|
16,952
|
|
|
Accrued interest receivable
|
|
|
4,033
|
|
|
|
4,316
|
|
|
Deferred income taxes
|
|
|
5,478
|
|
|
|
2,891
|
|
|
Mortgage servicing rights
|
|
|
2,205
|
|
|
|
2,820
|
|
|
Bank owned life insurance (BOLI)
|
|
|
15,585
|
|
|
|
15,424
|
|
|
Goodwill
|
|
|
4,629
|
|
|
|
—
|
|
|
Intangible assets
|
|
|
5,729
|
|
|
|
—
|
|
|
Other investments
|
|
|
10,866
|
|
|
|
5,640
|
|
|
Other assets
|
|
|
11,942
|
|
|
|
10,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,151,346
|
|
|
$
|
1,002,096
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand
|
|
$
|
174,449
|
|
|
$
|
228,269
|
|
|
Savings, NOW and market rate accounts
|
|
|
362,738
|
|
|
|
287,977
|
|
|
Wholesale deposits
|
|
|
120,761
|
|
|
|
129,820
|
|
|
Time deposits
|
|
|
211,542
|
|
|
|
203,462
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
869,490
|
|
|
|
849,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed funds
|
|
|
154,939
|
|
|
|
45,000
|
|
|
Subordinated debt
|
|
|
15,000
|
|
|
|
—
|
|
|
Accrued interest payable
|
|
|
4,369
|
|
|
|
6,294
|
|
|
Other liabilities
|
|
|
15,135
|
|
|
|
10,923
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,058,933
|
|
|
|
911,745
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
Common stock, par value $1; authorized 100,000,000 shares; issued 11,513,782 and 11,434,332 shares as of December 31, 2008 and 2007,
respectively, and outstanding of 8,592,259 and 8,526,084 shares as of December 31, 2008 and 2007, respectively
|
|
|
11,514
|
|
|
|
11,434
|
|
|
Paid-in capital in excess of par value
|
|
|
12,983
|
|
|
|
11,698
|
|
|
Accumulated other comprehensive loss, net of tax benefit
|
|
|
(7,995
|
)
|
|
|
(4,304
|
)
|
|
Retained earnings
|
|
|
105,845
|
|
|
|
101,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,347
|
|
|
|
119,974
|
|
|
Less: Common stock in treasury at cost – 2,921,523 and 2,908,248 shares as of December 31, 2008 and 2007,
respectively
|
|
|
(29,934
|
)
|
|
|
(29,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
92,413
|
|
|
|
90,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,151,346
|
|
|
$
|
1,002,096
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
|
$
|
10.76
|
|
|
$
|
10.60
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per share
|
|
$
|
9.55
|
|
|
$
|
10.60
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
24
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(dollars in thousands, except per share data)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
47,487
|
|
$
|
48,797
|
|
$
|
43,683
|
|
Interest and fees on leases
|
|
|
5,764
|
|
|
2,988
|
|
|
92
|
|
Interest on cash and cash equivalents
|
|
|
300
|
|
|
250
|
|
|
176
|
|
Interest on investment securities
|
|
|
4,383
|
|
|
2,183
|
|
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
57,934
|
|
|
54,218
|
|
|
45,906
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
Interest expense on savings, NOW and market rate deposits
|
|
|
3,753
|
|
|
4,169
|
|
|
3,850
|
|
Interest expense on time deposits
|
|
|
6,791
|
|
|
8,662
|
|
|
7,136
|
|
Interest expense on wholesale deposits
|
|
|
5,498
|
|
|
4,925
|
|
|
579
|
|
Interest expense on subordinated debt
|
|
|
408
|
|
|
—
|
|
|
—
|
|
Interest expense on other borrowings
|
|
|
4,346
|
|
|
2,220
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
20,796
|
|
|
19,976
|
|
|
12,607
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
37,138
|
|
|
34,242
|
|
|
33,299
|
|
Provision for loan and lease losses
|
|
|
5,596
|
|
|
891
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan and lease losses
|
|
|
31,542
|
|
|
33,351
|
|
|
32,467
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
Fees for Wealth management services
|
|
|
13,842
|
|
|
13,502
|
|
|
12,422
|
|
Service charges on deposit accounts
|
|
|
1,685
|
|
|
1,464
|
|
|
1,540
|
|
Loan servicing and other fees
|
|
|
1,194
|
|
|
1,115
|
|
|
1,126
|
|
Net gain on sale of loans
|
|
|
1,275
|
|
|
1,250
|
|
|
954
|
|
Net gain on sale of securities
|
|
|
230
|
|
|
—
|
|
|
—
|
|
Net gain on sale of real estate
|
|
|
—
|
|
|
1,333
|
|
|
—
|
|
BOLI income
|
|
|
261
|
|
|
424
|
|
|
—
|
|
Other operating income
|
|
|
2,985
|
|
|
2,693
|
|
|
2,319
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
21,472
|
|
|
21,781
|
|
|
18,361
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
18,989
|
|
|
17,116
|
|
|
15,754
|
|
Employee benefits
|
|
|
4,172
|
|
|
4,548
|
|
|
4,287
|
|
Occupancy and bank premises
|
|
|
3,165
|
|
|
2,862
|
|
|
2,534
|
|
Furniture, fixtures, and equipment
|
|
|
2,324
|
|
|
2,078
|
|
|
1,925
|
|
Advertising
|
|
|
1,115
|
|
|
1,026
|
|
|
898
|
|
Professional fees
|
|
|
1,550
|
|
|
1,585
|
|
|
1,016
|
|
FDIC insurance
|
|
|
472
|
|
|
81
|
|
|
78
|
|
Other operating expense
|
|
|
6,889
|
|
|
5,663
|
|
|
4,931
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
38,676
|
|
|
34,959
|
|
|
31,423
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,338
|
|
|
20,173
|
|
|
19,405
|
|
Income tax expense
|
|
|
5,013
|
|
|
6,573
|
|
|
6,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,325
|
|
$
|
13,600
|
|
$
|
12,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.09
|
|
$
|
1.59
|
|
$
|
1.48
|
|
Diluted earnings per common share
|
|
$
|
1.08
|
|
$
|
1.58
|
|
$
|
1.46
|
|
Dividends per share
|
|
$
|
0.54
|
|
$
|
0.50
|
|
$
|
0.46
|
|
Weighted-average basic shares outstanding
|
|
|
8,566,938
|
|
|
8,539,904
|
|
|
8,578,050
|
|
Dilutive potential common shares
|
|
|
34,233
|
|
|
93,638
|
|
|
113,579
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average dilutive shares
|
|
|
8,601,171
|
|
|
8,633,542
|
|
|
8,691,629
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
25
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
9,325
|
|
|
$
|
13,600
|
|
|
$
|
12,716
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses
|
|
|
5,596
|
|
|
|
891
|
|
|
|
832
|
|
|
Provision for depreciation and amortization
|
|
|
1,920
|
|
|
|
1,596
|
|
|
|
1,455
|
|
|
Loans originated for resale
|
|
|
(74,458
|
)
|
|
|
(90,164
|
)
|
|
|
(68,209
|
)
|
|
Proceeds from sale of loans
|
|
|
77,834
|
|
|
|
90,015
|
|
|
|
68,202
|
|
|
Net gain on sale of loans
|
|
|
(1,275
|
)
|
|
|
(1,250
|
)
|
|
|
(954
|
)
|
|
Net gain on sale of real estate
|
|
|
—
|
|
|
|
(1,333
|
)
|
|
|
—
|
|
|
Provision for deferred income taxes (benefit)
|
|
|
(600
|
)
|
|
|
82
|
|
|
|
(496
|
)
|
|
Change in income taxes payable/receivable
|
|
|
(906
|
)
|
|
|
707
|
|
|
|
1,228
|
|
|
Change in accrued interest receivable
|
|
|
283
|
|
|
|
(84
|
)
|
|
|
(967
|
)
|
|
Change in accrued interest payable
|
|
|
(1,925
|
)
|
|
|
1,948
|
|
|
|
2,203
|
|
|
Change in mortgage servicing rights
|
|
|
615
|
|
|
|
63
|
|
|
|
99
|
|
|
Change in intangible assets
|
|
|
141
|
|
|
|
—
|
|
|
|
—
|
|
|
Other, net
|
|
|
(3,832
|
)
|
|
|
(3,213
|
)
|
|
|
(2,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
12,718
|
|
|
|
12,858
|
|
|
|
13,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investment securities
|
|
|
(105,865
|
)
|
|
|
(17,033
|
)
|
|
|
(28,229
|
)
|
|
Proceeds from maturities of investment securities and mortgage-backed securities pay downs
|
|
|
9,534
|
|
|
|
8,775
|
|
|
|
7,181
|
|
|
Proceeds from sales of investment securities available for sale
|
|
|
26,011
|
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds from calls of investment securities
|
|
|
9,705
|
|
|
|
8,595
|
|
|
|
5,940
|
|
|
Proceeds from sale of real estate
|
|
|
—
|
|
|
|
1,850
|
|
|
|
—
|
|
|
Proceeds from sale of securities
|
|
|
1,350
|
|
|
|
—
|
|
|
|
—
|
|
|
Net increase in other investments
|
|
|
(5,226
|
)
|
|
|
(1,424
|
)
|
|
|
(2,622
|
)
|
|
Net repayments on notes receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
954
|
|
|
Net portfolio loan originations
|
|
|
(100,040
|
)
|
|
|
(122,524
|
)
|
|
|
(87,192
|
)
|
|
Purchase of Bank Owned Life Insurance (“BOLI)
|
|
|
—
|
|
|
|
(15,000
|
)
|
|
|
—
|
|
|
Purchase of premises and equipment
|
|
|
(5,930
|
)
|
|
|
(2,388
|
)
|
|
|
(3,303
|
)
|
|
Sale of Other Real Estate Owned (“OREO”)
|
|
|
—
|
|
|
|
110
|
|
|
|
25
|
|
|
Purchase of Lau Associates
|
|
|
(9,875
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(180,336
|
)
|
|
|
(139,139
|
)
|
|
|
(107,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in demand, NOW, savings and market rate deposit accounts
|
|
|
20,941
|
|
|
|
22,179
|
|
|
|
13,130
|
|
|
Change in time deposits
|
|
|
8,080
|
|
|
|
3,016
|
|
|
|
50,124
|
|
|
Change in wholesale deposits
|
|
|
(9,059
|
)
|
|
|
109,844
|
|
|
|
14,976
|
|
|
Dividends paid
|
|
|
(4,626
|
)
|
|
|
(4,269
|
)
|
|
|
(3,948
|
)
|
|
Increase in borrowed funds greater than 90 days
|
|
|
124,939
|
|
|
|
45,000
|
|
|
|
15,000
|
|
|
Repayment of borrowed funds greater than 90 days
|
|
|
—
|
|
|
|
(15,000
|
)
|
|
|
—
|
|
|
Purchase of treasury stock
|
|
|
(361
|
)
|
|
|
(2,420
|
)
|
|
|
(3,406
|
)
|
|
Tax benefit from exercise of stock options
|
|
|
185
|
|
|
|
182
|
|
|
|
293
|
|
|
Proceeds from exercise of stock options
|
|
|
1,230
|
|
|
|
918
|
|
|
|
2,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
141,329
|
|
|
|
159,450
|
|
|
|
88,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(26,289
|
)
|
|
|
33,269
|
|
|
|
(4,637
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
|
95,274
|
|
|
|
62,005
|
|
|
|
66,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
68,985
|
|
|
$
|
95,274
|
|
|
$
|
62,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
6,238
|
|
|
$
|
6,192
|
|
|
$
|
7,289
|
|
|
Interest
|
|
|
22,721
|
|
|
|
18,028
|
|
|
|
10,404
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in other comprehensive income
|
|
$
|
(5,678
|
)
|
|
$
|
223
|
|
|
$
|
648
|
|
|
Change in deferred tax due to change in other comprehensive income
|
|
|
(1,987
|
)
|
|
|
77
|
|
|
|
227
|
|
The accompanying notes are an integral part of the consolidated financial statements.
26
Consolidated Statements of Changes in Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
2008, 2007 and 2006
|
|
|
|
|
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, 2005
|
|
11,221,899
|
|
|
$
|
11,222
|
|
|
$
|
7,888
|
|
|
$
|
82,639
|
|
|
$
|
(643
|
)
|
|
$
|
(23,884
|
)
|
|
$
|
77,222
|
|
|
Cumulative effect adjustment to initially apply SAB 108
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
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 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
|
|
|
$
|
91,815
|
|
|
$
|
(4,450
|
)
|
|
$
|
(27,244
|
)
|
|
$
|
82,092
|
|
|
Net Income
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,600
|
|
|
Dividends declared - $0.50 per share
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,269
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,269
|
)
|
|
Other comprehensive income, net of tax expense of $77
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
146
|
|
|
|
—
|
|
|
|
146
|
|
|
Tax benefit stock option exercise
|
|
—
|
|
|
|
—
|
|
|
|
182
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
182
|
|
|
Purchase of treasury stock
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,420
|
)
|
|
|
(2,420
|
)
|
|
Retirement of treasury stock
|
|
(4,128
|
)
|
|
|
(4
|
)
|
|
|
(37
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
41
|
|
|
|
—
|
|
|
Common stock issued
|
|
65,278
|
|
|
|
65
|
|
|
|
955
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2007
|
|
11,434,332
|
|
|
$
|
11,434
|
|
|
$
|
11,698
|
|
|
$
|
101,146
|
|
|
$
|
(4,304
|
)
|
|
$
|
(29,623
|
)
|
|
$
|
90,351
|
|
|
Net Income
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,325
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,325
|
|
|
Dividends declared - $0.54 per share
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,626
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,626
|
)
|
|
Other comprehensive income, net of tax benefit of ($1,987)
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,691
|
)
|
|
|
—
|
|
|
|
(3,691
|
)
|
|
Tax benefit stock option exercise
|
|
—
|
|
|
|
—
|
|
|
|
185
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
185
|
|
|
Purchase of treasury stock
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(361
|
)
|
|
|
(361
|
)
|
|
Retirement of treasury stock
|
|
(5,096
|
)
|
|
|
(5
|
)
|
|
|
(45
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
Common stock issued
|
|
84,546
|
|
|
|
85
|
|
|
|
1,145
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2008
|
|
11,513,782
|
|
|
$
|
11,514
|
|
|
$
|
12,983
|
|
|
$
|
105,845
|
|
|
$
|
(7,995
|
)
|
|
$
|
(29,934
|
)
|
|
$
|
92,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
9,325
|
|
|
$
|
13,600
|
|
|
$
|
12,716
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains, net of tax expense of $318, $198 and $76, respectively
|
|
|
589
|
|
|
|
370
|
|
|
|
140
|
|
Change in unfunded pension and post-retirement liability, net of tax expense (benefit) of $(2,305), ($121) and $151,
respectively
|
|
|
(4,280
|
)
|
|
|
(224
|
)
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
5,634
|
|
|
$
|
13,746
|
|
|
$
|
13,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
27
Notes to Consolidated Financial Statements
1. S
UMMARY
OF
S
IGNIFICANT
A
CCOUNTING
P
OLICIES
A. Nature of Business
The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr
Bank Corporation (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 nine full service branches and seven retirement community offices
throughout Montgomery, Delaware and Chester counties. In 2008, the Corporation opened the Bryn Mawr Trust Company of Delaware in Wilmington, Delaware, to further its long-term growth strategy, and diversify its asset base and client accounts. The
Corporation trades on the NASDAQ Global Market (“NASDQ”) 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”), Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Pennsylvania Department of Banking.
B. Basis of Presentation
The accounting policies of the Corporation
conform with accounting principles generally accepted in the United States of America (“GAAP”) and predominant practice within 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
Corporation’s consolidated financial condition and results of operations consist almost entirely of the Bank’s 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.
Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in 2009, actual conditions
could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan and lease losses and lending
related commitments, goodwill and intangible assets, pension and post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of
investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending related commitments as well as increased pension and post-retirement expense.
C. Cash and Cash Equivalents
Cash and cash equivalents include cash
due from banks, interest-bearing deposits, federal funds sold and money market funds 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 $1.9 million and $2.0 million at December 31, 2008 and December 31, 2007, respectively.
D. 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.
E. 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.
F. 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 portfolio, its debtors’ ability to honor their contracts is substantially dependent upon the real estate and general economic conditions of the region.
28
Loans and leases 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 yield
using the interest method.
The accrual of interest on loans and leases is generally discontinued at the time the loan is 90 days delinquent unless the
credit is well secured and in the process of collection. Loans and leases are placed on 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. All interest accrued, but not collected on leases that are placed on non-accrual status is not reversed against interest until the lease is charged-off
at 120 days delinquent. The interest received on these non-accrual loans and leases is applied to reduce the carrying value of loans and leases or, if principal is considered fully collectible, recognized as interest income until qualifying for
return to accrual status. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
G. 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 are charged against the allowance when Management believes that the principal is
uncollectible. The allowance is maintained at a level that Management believes is sufficient to absorb estimated probable credit losses.
Management’s
determination of the adequacy of the allowance is based on periodic evaluations of the loan and lease portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires significant estimates by Management.
Consideration is given to a variety of factors in establishing these estimates including specific terms and conditions of loans and leases, underwriting standards, delinquency statistics, industry concentration, overall exposure to a single
customer, adequacy of collateral, the dependence on collateral, and results of internal loan review, including 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 and lease 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 Corporation’s 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.
H. Other Investments
Other investments include Community Reinvestment Act (“CRA”) investment, and equity
stocks without a determinable fair market value. The equity stocks include Federal Home Loan Bank of Pittsburgh (“FHLB-P”) and Federal Reserve Bank. These investments are carried at the lower of cost or market. For further information on
the FHLB-P stock, see Footnote 9 – Borrowed Funds.
I. Impaired Loans and Leases
A loan or lease 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. Management’s assessment of impairment is applied to the factors considered in determining impairment. Factors include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans and leases that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
J. 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.
29
K. 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.
L. Pension and Postretirement Benefit Plans
The Corporation has three defined benefit pension plans and one postretirement benefit plan as discussed in Note 14 – Pension and Postretirement Benefit Plans. 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.
On February 12, 2008 the Corporation amended the Qualified Defined Pension Plan to cease further accruals of benefits effective March 31, 2008, and amended the
401(K) Plan to provide for a new class of immediately vested discretionary, non-matching employer contribution effective April 1, 2008. Additionally, the Corporation created a new non-qualified defined benefit pension plan for certain officers
of the Bank and to provide that each participant’s accrued benefit shall be reduced by the actuarially equivalent value of the immediately vested discretionary, non-matching employer contribution to the 401(K) Plan made on his or her behalf.
M. BOLI
The Corporation purchased $15.0 million of
BOLI during the second quarter of 2007. On August 13, 2008 the Bank gave notice to its BOLI insurance carrier that it was surrendering its separate account BOLI contract. The Bank received $15.6 million in cash on February 9, 2009. As
part of the surrender, the Corporation has represented to the insurance carrier that it will not enter into any other BOLI agreement or obtain life insurance on any of the employees covered by the BOLI policy for five years.
BOLI is recorded at its cash surrender value on the balance sheet. Income from BOLI is tax-exempt and included as a component of other non-interest income. In 2007, BOLI
income was tax-exempt. However, as a result of the surrender of the BOLI contract in August 2008, the total income earned in 2007 and 2008 became taxable income. This resulted in a tax expense at a rate of 45% or $266 thousand in 2008.
N. 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.
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.
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.
Stock-based compensation expense for 2008, 2007 and 2006 are
shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Without
FAS 123R
Effect
|
|
|
FAS 123R
Effects
|
|
|
As
Reported
|
|
|
Without
FAS 123R
Effect
|
|
|
FAS 123R
Effects
|
|
|
As
Reported
|
|
|
Without
FAS 123R
Effect
|
|
|
FAS 123R
Effects
|
|
|
As
Reported
|
|
|
Income before taxes
|
|
$
|
14,615
|
|
|
$
|
(277
|
)
|
|
$
|
14,338
|
|
|
$
|
20,248
|
|
|
$
|
(75
|
)
|
|
$
|
20,173
|
|
|
$
|
19,464
|
|
|
$
|
(59
|
)
|
|
$
|
19,405
|
|
|
Income taxes
|
|
|
(5,110
|
)
|
|
|
97
|
|
|
|
(5,013
|
)
|
|
|
(6,599
|
)
|
|
|
26
|
|
|
|
(6,573
|
)
|
|
|
(6,710
|
)
|
|
|
21
|
|
|
|
(6,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,505
|
|
|
$
|
(180
|
)
|
|
$
|
9,325
|
|
|
$
|
13,649
|
|
|
$
|
(49
|
)
|
|
$
|
13,600
|
|
|
$
|
12,754
|
|
|
$
|
(38
|
)
|
|
$
|
12,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.11
|
|
|
$
|
(.02
|
)
|
|
$
|
1.09
|
|
|
$
|
1.60
|
|
|
$
|
(.01
|
)
|
|
$
|
1.59
|
|
|
$
|
1.48
|
|
|
$
|
.00
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.10
|
|
|
$
|
(.02
|
)
|
|
$
|
1.08
|
|
|
$
|
1.58
|
|
|
$
|
.00
|
|
|
$
|
1.58
|
|
|
$
|
1.47
|
|
|
$
|
(.01
|
)
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 16, Stock Option Plan, and Note 17, Earnings Per Share, in these Consolidated Financial Statements for
additional information regarding equity based compensation and earnings per share, respectively.
30
O. Earnings Per Common Share
Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during 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 Corporation’s common stock at the
average market price during the period, as required by the treasury stock method of accounting. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive. 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.
P. 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.
Q. Revenue Recognition
With the exception of non-accrual loans and leases, the Corporation recognizes all sources of income on the accrual basis. Additional information relating to wealth
management fee revenue recognition follows:
The Corporation earns wealth management fee revenue from a variety of sources including fees from trust
administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax service fees, shareholder service fees and brokerage. These fees are
based on asset values and fluctuate with the market. The revenues generated by Lau Associates are not tied to asset value but are based on a flat fee for services provided. The Corporation also earned fees in 2006 and 2007 for providing investment
advisory services to the clients of another financial institution. Due to a business consolidation, the Corporation no longer provided these advisory services in 2008. For many of our revenue sources, amounts are not received in the same accounting
period in which they are earned. However, each source of Wealth Management fees is recorded on the accrual method of accounting.
The most significant
portion of the Corporation’s Wealth Management fees is derived from trust administration and other related services, custody, investment management and advisory services, and employee benefit account and IRA administration. These fees are
generally billed in arrears, based on the market value of assets at the end of the previous billing period. A smaller number of customers are billed in a similar manner, but on a quarterly or annual basis.
The balance of the Corporation’s Wealth Management income includes: shareholder service fees, which are received monthly and quarterly in arrears, but accrued
monthly based on the estimated market value of the Corporation’s position in the applicable mutual fund; (2) estate settlement fees and tax service fees, which are recorded when the related service is performed; and (3) brokerage fees
on non-depository investment products, which are received one month in arrears based on settled transactions but are accrued in the month when the settlement occurs. Investment advisory fees from the other financial institution relates to a revenue
source that ceased in 2007 when the unrelated entity was acquired by another financial institution.
Included in other assets on the statement of condition
is a wealth management fee receivable that reflects the impact of fees earned but not yet collected. This receivable is reviewed quarterly for collectibility.
R. 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. Gain on sale of loans is based on the specific identification method.
Mortgage servicing rights (MSRs) are recognized as separate assets when rights are retained through the sale of financial assets. Capitalized servicing rights 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 is not reversed.
31
S. Statement of Cash Flows
The Corporation’s statement of cash flows details operating, investing and financing activities during the reported periods.
T. Interest
Rate Floor
The Corporation accounts for derivatives under FASB Statement No. 133 “Accounting for Derivative Instruments on Hedging
Activities”, as amended. The Corporation records interest rate floors, which are not used as hedging instruments, at fair value on the balance sheet as part of other assets. Changes in the fair value of the interest rate floor are recorded in
current earnings as other operating income or other operating expense, depending on whether the net change in value for the applicable period was a gain or loss. The interest rate floor was closed out in January 2008.
U. Goodwill and Other Intangible Assets
The Corporation accounts for
goodwill and other intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” All goodwill and intangible assets as of December 31, 2008 are related to the acquisition of Lau Associates. The amount
of goodwill initially recorded reflects the value assigned to the asset at the time of investment. Goodwill impairment tests are performed at least annually, or when events occur or circumstances change that would more likely than not reduce the
fair value of the acquisition or investment.
The Corporation’s impairment testing methodology is consistent with the methodology prescribed in SFAS
No. 142. Other intangible assets include customer relationships, a non-compete agreement and a trade name. The customer relationships and non-compete agreement intangibles are amortized on the straight-line basis over the estimated useful life
of the asset. The trade name intangible has an indefinite life and is evaluated for impairment in accordance with SFAS No. 142 as prescribed above.
V. Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
W. New Accounting Pronouncements
Standards Adopted:
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 adopted FAS 157 effective January 1, 2008 and has determined that the adoption of this Statement did not have a material impact on the Corporation’s consolidated financial statements.
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”). 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.
The Corporation adopted FAS 159 effective January 1, 2008, and has determined that the adoption of this Statement did not have a material impact on the
Corporation’s consolidated financial statements.
SAB No. 109
In November 2007, the SEC issued SAB No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings”. SAB No. 109 supersedes SAB
No. 105, “Loan Commitments Accounted for as Derivative Instruments”, and expresses the view that expected net future cash flows related to the servicing of loans should be included in the fair value measurement of all written loan
commitments that are accounted for a fair value through earnings. SAB No. 109 retains the views in SAB No. 105 that internally developed intangible assets (such as client relationship intangible assets) should not be included in the fair
value measurement of derivative loan commitments. SAB No. 109 became effective on January 1, 2008 and did not have a material effect on the Corporation’s consolidated financial statements upon adoption.
SAB No. 110
In December 2007, the SEC
issued SAB No. 110, and extended, under certain circumstances, the availability of a “simplified” method for estimating the expected term of “plain vanilla” share options in accordance with SFAS No. 123 (revised). Since
the Corporation does not use the “simplified” method to estimate the expected term of share options, the adoption of SAB No. 110 did not effect the Corporation’s consolidated financial statements.
Standards Not Yet Adopted:
FAS 160
In December 2007 the FASB issued FAS No. 160 – “Noncontrolling Interest in Consolidated Financial Statements – Including an Amendment
of ARB No. 51” (“FAS 160”). FAS 160 improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
32
FAS 160 is effective as of the beginning of an entity’s first fiscal year that begins on or after December 15,
2008. Early adoption is prohibited. The Corporation has not yet determined whether this statement will have a material impact on the Corporation’s consolidated financial statements upon adoption.
FAS 161
In March 2008, the FASB issued SFAS
No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 amends SFAS No. 133 and its related guidance by requiring expanded disclosures about
derivative instruments and hedging activities. This statement will require us to provide additional disclosure about a) how and why we use derivative instruments; b) how we account for derivative instruments and related hedged items under SFAS
No. 133 and its related interpretations; and c) how derivative instruments and related hedged items effect our financial condition, financial performance, and cash flows. SFAS No. 161 does not change the accounting for derivatives under
SFAS No. 133.
SFAS No. 161 will be effective for the fiscal year and interim periods beginning January 1, 2009, with early adoption
encouraged. The Corporation has not yet determined whether this statement will have a material impact on the Corporation’s consolidated financial statements upon adoption.
FAS No. 141
(revised)
In
December 2007, FASB issued FAS No. 141 (revised 2007), “Business Combinations”. FAS No. 141 (revised) retains the fundamental requirement of FAS 141 that the acquisition method of accounting be used for all business combinations.
However, FAS No. 141 (revised) does make significant changes to the accounting for a business combination achieved in stages, the treatment of contingent consideration, transaction and restructuring costs, and other aspects of business
combination accounting. FAS No. 141 (revised) will be effective with the fiscal year that begins on January 1, 2009, and will change the Corporation’s accounting treatment for business combinations on a prospective basis.
X. Adjustment Related to Prior Financial Statements
In
2006, the Corporation determined that two prior misstatements were material under the guidance of Staff Accounting Bulletin No.108 (“SAB 108”) and were recorded in the 2006 Consolidated Financial Statements. Consistent with the adoption in
2006 of SAB 108 and its transition provisions, the Statement of Changes in Shareholders Equity reflects a cumulative effect adjustment of an increase in retained earnings of $408 thousand effective January 1, 2006 related to these errors
.
2. A
CQUISITION
OF
L
AU
ASSOCIATES
On July 15, 2008, the Corporation acquired JNJ Holdings LLC
(“JNJ”), Lau Associates LLC (“Lau”) and Lau Professional Services LLC (together with JNJ and Lau, “Lau Associates”). The Corporation acquired all of the issued and outstanding limited liability company membership
interests in JNJ, a holding company that wholly owned Lau Associates, a financial planning and investment advisory firm, and Lau Professional Services, a tax preparation firm. The results of operations for Lau Associates for the 5.5 month period
from July 15, 2008 to December 31, 2008 are included in the consolidated financial statements. Lau Associates is included in the wealth segment of the Corporation since it has similar economic characteristics, products and services to
those of the wealth segment of the Corporation.
Lau Associates is a nationally recognized, independent, family office serving high net worth individuals
and families, with special expertise in planning intergenerational inherited wealth. The company had approximately $401 million of assets under management and another $105 million under supervision as of December 31, 2008.
The transaction was valued at $10.3 million for 100% of the Company. The valuation was based on 2007 pre-tax income of $891 thousand with a multiple of 11.5. The
Corporation paid $3.7 million in cash which represented 32.5% of the earn-out valuation plus a one-time payment, to Marigot Daze (the Seller of JNJ) on July 15, 2008 to acquire the assets and control of the Company. A second estimated
contingent earn-out payment for the additional purchase price was paid in cash to Marigot Daze on December 31, 2008 in the amount of $5.9 million based upon Lau Associates estimated 2008 pre-tax income with a multiple of 12. Based upon the
final determination of 2008 actual pre-tax income, an additional payment of $195 thousand will be paid to Marigot Daze in the first quarter of 2009. The second earn out payment represented 32.5% of the earn out valuation.
The remaining value of Lau Associates (35%) is expected to be paid in subsequent contingent payments over a 3 year earn-out period that includes payments for each
of the calendar years ending December 31, 2009, 2010 and 2011. These subsequent contingent earn-out payments will be made based upon the product of pre-tax income for such calendar years times the pre-defined compound annual growth rate
multiple for each calendar year at the applicable percentage rate of 11.7% for each 2009, 2010 and 2011. The maximum purchase price will not exceed more than $19 million. Additional earn-out payments will increase goodwill. Additional direct costs
associated with the acquisition (investment banking financial advisory fees, legal fees, accounting and auditing fees and professional advisory and consulting fees) amounted to $465 thousand and were capitalized.
33
The following table summarizes the fair value of assets acquired and liabilities assumed on the date of acquisition. This
transaction was accounted for using the purchase method of accounting.
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
151
|
|
Intangible assets
|
|
|
5,870
|
|
Premises and equipment
|
|
|
61
|
|
Accounts receivable
|
|
|
24
|
|
Other assets
|
|
|
23
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,129
|
|
|
|
|
|
|
Liabilities & Equity
|
|
|
|
|
Contingent payment liability
|
|
|
1,271
|
|
Deferred revenue
|
|
|
614
|
|
Deferred rent obligation
|
|
|
59
|
|
Other accrued liabilities
|
|
|
61
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,005
|
|
|
|
|
|
|
Equity
|
|
|
4,124
|
|
|
|
|
|
|
Total liabilities & equity
|
|
$
|
6,129
|
|
|
|
|
|
The Corporation recorded a net contingent payment liability at acquisition after recording the purchase of the
tangible assets, and the value of the intangible assets and liabilities and recording cash basis to accrual accounting adjustments. Part of the $5.9 million earn-out payment made on December 31, 2008 was applied to the contingent liability
recorded at acquisition, thereby exhausting the balance. The difference was applied to goodwill. All future earn-out payments will be applied to goodwill.
The fair value measurement of assets was finalized at acquisition. The fair value of intangible assets and the related amortization schedule as of December 31, 2008 was as follows: The Corporation had no goodwill or intangible assets
prior to the acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Beginning
Balance
1/1/08
|
|
Additions
Gross Fair
Value
|
|
Accumulated
Amortization
|
|
|
Ending
Balance
12/31/09
|
|
Amortization
Period
|
|
Goodwill
|
|
$
|
—
|
|
$
|
4,629
|
|
$
|
—
|
|
|
$
|
4,629
|
|
Indefinite
|
|
Customer relationships (list)
|
|
|
—
|
|
|
5,100
|
|
|
(117
|
)
|
|
|
4,983
|
|
20 Years
|
|
Non compete agreement
|
|
|
—
|
|
|
530
|
|
|
(24
|
)
|
|
|
506
|
|
10 Years
|
|
Brand (trade name)
|
|
|
—
|
|
|
240
|
|
|
—
|
|
|
|
240
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
––
|
|
$
|
10,499
|
|
$
|
(141
|
)
|
|
$
|
10,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects amortization of intangible assets of $308 thousand annually for each of the five succeeding
years from 2009 to 2013 as the intangible assets will be amortized on a straight-line basis.
The following table summarizes the unaudited proforma
operating results of the Corporation had the acquisition of Lau Associates occurred on January 1, 2007:
Bryn Mawr Bank Corporation
Proforma Results of Operation
|
|
|
|
|
|
|
|
|
|
|
For the
Twelve Months Ending
December 31
|
|
(dollars in thousands, except per share data)
|
|
2008
|
|
2007
|
|
Total interest income
|
|
$
|
57,934
|
|
$
|
54,218
|
|
Total interest expense
|
|
|
20,796
|
|
|
19,976
|
|
Provision for loan and lease losses
|
|
|
5,596
|
|
|
891
|
|
Total non-interest income
|
|
|
23,343
|
|
|
24,818
|
|
Total non-interest expense
|
|
|
40,040
|
|
|
37,191
|
|
|
|
|
|
|
|
|
|
Income before tax
|
|
|
14,845
|
|
|
20,978
|
|
Income tax
|
|
|
5,190
|
|
|
6,855
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
9,655
|
|
$
|
14,123
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.13
|
|
$
|
1.65
|
|
Diluted earnings per share
|
|
$
|
1.12
|
|
$
|
1.64
|
Proforma assumptions:
|
|
•
|
|
Taxes on Lau Associates related income were calculated using 35%.
|
3. 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, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Obligations of the U.S. Government and agencies
|
|
$
|
10,999
|
|
$
|
171
|
|
$
|
—
|
|
|
$
|
11,170
|
|
State & political subdivisions
|
|
|
7,071
|
|
|
43
|
|
|
(18
|
)
|
|
|
7,096
|
|
Federal agency mortgage backed securities
|
|
|
78,054
|
|
|
1,647
|
|
|
(42
|
)
|
|
|
79,659
|
|
Corporate bonds
|
|
|
10,181
|
|
|
—
|
|
|
(727
|
)
|
|
|
9,454
|
|
Other securities
|
|
|
950
|
|
|
—
|
|
|
—
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,255
|
|
$
|
1,861
|
|
$
|
(787
|
)
|
|
$
|
108,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Market
Value
|
|
Obligations of the U.S. Government and agencies
|
|
$
|
22,005
|
|
$
|
137
|
|
$
|
(11
|
)
|
|
$
|
22,131
|
|
State & political subdivisions
|
|
|
7,775
|
|
|
7
|
|
|
(90
|
)
|
|
|
7,692
|
|
Federal agency mortgage
backed securities
|
|
|
17,055
|
|
|
144
|
|
|
(25
|
)
|
|
|
17,174
|
|
Other securities
|
|
|
1,301
|
|
|
9
|
|
|
(5
|
)
|
|
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,136
|
|
$
|
297
|
|
$
|
(131
|
)
|
|
$
|
48,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
The following table shows the amount of securities that were in an unrealized loss position at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
State & political subdivisions
|
|
|
1,163
|
|
|
(18
|
)
|
|
|
—
|
|
|
—
|
|
|
1,163
|
|
|
(18
|
)
|
|
Federal agency mortgage backed securities
|
|
|
3,800
|
|
|
(42
|
)
|
|
|
—
|
|
|
—
|
|
|
3,800
|
|
|
(42
|
)
|
|
Corporate bonds
|
|
|
9,454
|
|
|
(727
|
)
|
|
|
—
|
|
|
—
|
|
|
9,454
|
|
|
(727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,417
|
|
$
|
(787
|
)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14,417
|
|
$
|
(787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2008 securities having an amortized cost of $67.5 million were pledged as collateral for public funds, trust deposits, the FRB discount window program, the
FHLB-P borrowings and other purposes.
The amortized cost and estimated market value of investment securities at December 31, 2008 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.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
(dollars in thousands)
|
|
Amortized
Cost
|
|
Estimated
Market
Value
|
|
Due in one year or less
|
|
$
|
350
|
|
$
|
350
|
|
Due after one year through five years
|
|
|
22,507
|
|
|
22,262
|
|
Due after five years through ten years
|
|
|
5,163
|
|
|
4,895
|
|
Due after ten years
|
|
|
1,181
|
|
|
1,163
|
|
No stated maturity
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
29,201
|
|
|
28,670
|
|
Mortgage backed securities
|
|
|
78,054
|
|
|
79,659
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,255
|
|
$
|
108,329
|
|
|
|
|
|
|
|
|
The sale of debt securities in 2008 totaled $26.0 million. There were no sales of debt securities in 2007 or 2006.
4. L
OANS
AND
L
EASES
Loans and leases outstanding at December 31 are detailed by
category as follows:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
Loans held for sale
|
|
$
|
3,024
|
|
|
$
|
5,125
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
249,730
|
|
|
|
224,510
|
|
|
Home equity lines and loans
|
|
|
154,576
|
|
|
|
123,293
|
|
|
Residential mortgage loans
|
|
|
132,536
|
|
|
|
121,313
|
|
|
Construction loans
|
|
|
58,446
|
|
|
|
66,901
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
595,288
|
|
|
|
536,017
|
|
|
Commercial and industrial loans
|
|
|
236,469
|
|
|
|
213,834
|
|
|
Consumer loans
|
|
|
8,518
|
|
|
|
7,990
|
|
|
Leases
|
|
|
59,302
|
|
|
|
45,084
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio loans and leases
|
|
|
899,577
|
|
|
|
802,925
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
902,601
|
|
|
$
|
808,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with predetermined rates
|
|
$
|
351,925
|
|
|
$
|
333,662
|
|
|
Loans with adjustable or floating rates
|
|
|
550,676
|
|
|
|
474,388
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
902,601
|
|
|
$
|
808,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred loan origination costs and (fees) included in the above loan table
|
|
$
|
343
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans
|
|
$
|
5,303
|
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still accruing
|
|
$
|
504
|
|
|
$
|
1,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases outstanding at December 31 are detailed by components of the net investment as follows:
|
|
|
|
|
|
|
|
December 31
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
Minimum lease payments receivable
|
|
$
|
69,812
|
|
|
$
|
54,712
|
|
|
Estimated residual value of equipment
|
|
|
—
|
|
|
|
—
|
|
|
Unearned lease income
|
|
|
(13,784
|
)
|
|
|
(12,642
|
)
|
|
Initial direct costs and deferred fees
|
|
|
3,274
|
|
|
|
3,014
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,302
|
|
|
$
|
45,084
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Impaired loans at year end
|
|
$
|
4,586
|
|
$
|
574
|
|
$
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
Average impaired loans for the year
|
|
$
|
1,476
|
|
$
|
504
|
|
$
|
801
|
|
|
|
|
|
|
|
|
|
|
|
35
A summary of the changes in the allowance for impaired loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
|
2006
|
|
|
Balance, January 1
|
|
$
|
124
|
|
$
|
101
|
|
|
$
|
66
|
|
|
Charge-offs
|
|
|
—
|
|
|
(37
|
)
|
|
|
(120
|
)
|
|
Recoveries
|
|
|
—
|
|
|
60
|
|
|
|
5
|
|
|
Provision
|
|
|
—
|
|
|
—
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
124
|
|
$
|
124
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income that would have been recognized under original terms
|
|
$
|
141
|
|
$
|
48
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income actually received
|
|
$
|
84
|
|
$
|
23
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized
|
|
$
|
42
|
|
$
|
1
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized using the cash basis method of income recognition
|
|
$
|
42
|
|
$
|
1
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for impaired loans of $124 thousand is included in the Corporation’s allowance for loan and
lease losses of $10.3 million.
5. 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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance, January 1
|
|
$
|
8,124
|
|
|
$
|
8,122
|
|
|
$
|
7,402
|
|
|
Charge-offs
|
|
|
(3,616
|
)
|
|
|
(1,036
|
)
|
|
|
(151
|
)
|
|
Recoveries
|
|
|
228
|
|
|
|
147
|
|
|
|
39
|
|
|
Provision
|
|
|
5,596
|
|
|
|
891
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
10,332
|
|
|
$
|
8,124
|
|
|
$
|
8,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. P
REMISES
AND
E
QUIPMENT
A summary of premises and equipment at December 31 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
$
|
3,268
|
|
|
$
|
2,879
|
|
|
Buildings
|
|
|
16,320
|
|
|
|
13,187
|
|
|
Furniture and equipment.
|
|
|
17,451
|
|
|
|
16,430
|
|
|
Leasehold improvements
|
|
|
7,205
|
|
|
|
6,738
|
|
|
Construction in progress
|
|
|
2,073
|
|
|
|
1,309
|
|
|
Less: accumulated depreciation
|
|
|
(25,021
|
)
|
|
|
(23,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,296
|
|
|
$
|
16,952
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to the assets detailed in the above table for the years ended
December 31, 2008, 2007, and 2006 amounted to $1.7 million, $1.5 million, and $1.4 million, respectively.
Future minimum cash rent
commitments under various operating leases as of December 31, 2008 are as follows:
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
2009
|
|
$
|
1,334
|
|
2010
|
|
|
1,281
|
|
2011
|
|
|
1,241
|
|
2012
|
|
|
1,066
|
|
2013
|
|
|
1,066
|
|
2014 and thereafter
|
|
$
|
15,845
|
Rent expense on leased premises and equipment for the years ended December 31, 2008, 2007 and 2006 amounted
to $1.03 million, $963 thousand and $795 thousand, respectively.
7. M
ORTGAGE
S
ERVICING
The following summarizes the Corporation’s activity related to
MSRs for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance, January 1
|
|
$
|
2,820
|
|
|
$
|
2,883
|
|
|
$
|
2,982
|
|
|
Additions
|
|
|
420
|
|
|
|
285
|
|
|
|
249
|
|
|
Amortization
|
|
|
(367
|
)
|
|
|
(313
|
)
|
|
|
(334
|
)
|
|
Impairment
|
|
|
(668
|
)
|
|
|
(35
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
2,205
|
|
|
$
|
2,820
|
|
|
$
|
2,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
2,210
|
|
|
$
|
3,881
|
|
|
$
|
4,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans serviced for others
|
|
$
|
350,199
|
|
|
$
|
357,363
|
|
|
$
|
382,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes the Corporation’s activity related to changes in the impairment valuation allowance
of MSRs for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance, January 1
|
|
$
|
(35
|
)
|
|
$
|
(14
|
)
|
|
$
|
—
|
|
|
Impairment
|
|
|
(698
|
)
|
|
|
(29
|
)
|
|
|
(14
|
)
|
|
Recovery
|
|
|
30
|
|
|
|
8
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
(703
|
)
|
|
$
|
(35
|
)
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, key economic assumptions and the sensitivity of the current fair value of MSRs to
immediate 10 and 20 percent adverse changes in those assumptions are as follows:
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Fair value amount of MSRs
|
|
$
|
2,210
|
|
|
Weighted average life (in years)
|
|
|
2.9
|
|
|
Prepayment speeds (constant prepayment rate)*
|
|
|
25.5
|
%
|
|
Impact on fair value:
|
|
|
|
|
|
10% adverse change
|
|
$
|
(164
|
)
|
|
20% adverse change
|
|
$
|
(312
|
)
|
|
Discount rate
|
|
|
10.25
|
%
|
|
Impact on fair value:
|
|
|
|
|
|
10% adverse change
|
|
$
|
(55
|
)
|
|
20% adverse change
|
|
$
|
(106
|
)
|
|
*
|
Represents the weighted average prepayment rate for the life of the MSR asset.
|
36
For the periods ended December 31, 2008, 2007 and 2006, the fair value of the mortgage servicing rights
(“MSRs”) is $2.21 million, $3.88 million and $4.29 million, respectively. The fair value of the MSRs for these periods was determined using a third-party valuation model that calculates the present value of estimated future servicing
income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are
forecasted to repay their mortgage loan principle and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model-is the required rate of return the
market would expect for an asset with similar risk. Both assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change.
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
in one factor may result in changes in another, which could magnify or counteract the sensitivities.
8. D
EPOSITS
Following is a summary of deposits as of December 31,
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
Savings
|
|
$
|
54,333
|
|
$
|
36,181
|
|
NOW accounts
|
|
|
135,587
|
|
|
137,486
|
|
Market rate accounts
|
|
|
172,818
|
|
|
114,310
|
|
Time deposits (less than $100,000)
|
|
|
95,326
|
|
|
83,890
|
|
Time deposits, $100,000 or more
|
|
|
116,216
|
|
|
119,572
|
|
Wholesale deposits
|
|
|
120,761
|
|
|
129,820
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
695,041
|
|
|
621,259
|
|
Non-interest-bearing deposits
|
|
|
174,449
|
|
|
228,269
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
869,490
|
|
$
|
849,528
|
|
|
|
|
|
|
|
|
The aggregate amount of deposit overdrafts included as loans as of December 31, 2008 and 2007 were $357
thousand and $889 thousand, respectively.
Maturity of time deposits exceeding $100 thousand as of December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
$100,000
or more
|
|
Less than
$100,000
|
|
Maturing during:
|
|
|
|
|
|
|
|
2009
|
|
$
|
115,396
|
|
$
|
90,896
|
|
2010
|
|
|
720
|
|
|
3,534
|
|
2011
|
|
|
—
|
|
|
629
|
|
2012
|
|
|
—
|
|
|
157
|
|
2013
|
|
|
100
|
|
|
18
|
|
2014 and thereafter
|
|
|
—
|
|
|
92
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
116,216
|
|
$
|
95,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity of wholesale deposits as of December 31, 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
$100,000
or more
|
|
Less than
$100,000
|
|
Maturing during:
|
|
|
|
|
|
|
|
2009
|
|
$
|
77,024
|
|
$
|
29,413
|
|
2010
|
|
|
8,623
|
|
|
—
|
|
2011
|
|
|
5,701
|
|
|
—
|
|
2012
|
|
|
—
|
|
|
—
|
|
2013 and thereafter
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,348
|
|
$
|
29,413
|
|
|
|
|
|
|
|
|
9. B
ORROWED
F
UNDS
Borrowings at December 31, 2008 consisted of the following
FHLB-P advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing
|
|
Interest
Rate
|
|
Maturity
|
|
Term
|
|
Next Call
Date
|
|
F/V
|
|
|
Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,852
|
|
2.88%
|
|
4/11/2011
|
|
3 year
|
|
|
|
F
|
|
|
13,837
|
|
3.90
|
|
8/13/2012
|
|
4 year
|
|
|
|
F
|
|
|
8,599
|
|
3.15
|
|
3/12/2013
|
|
5 year
|
|
|
|
F
|
|
|
9,151
|
|
3.57
|
|
4/08/2015
|
|
7 year
|
|
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,000
|
|
4.22
|
|
11/09/2009
|
|
2 year
|
|
|
|
F
|
|
|
10,000
|
|
3.55
|
|
10/04/2010
|
|
2 year
|
|
|
|
F
|
|
|
10,000
|
|
1.36
|
|
10/18/2010
|
|
3 year
|
|
|
|
V
|
|
|
10,000
|
|
4.30
|
|
11/09/2010
|
|
3 year
|
|
|
|
F
|
|
|
5,000
|
|
3.18
|
|
1/24/2011
|
|
2 yr. 11 mo.
|
|
|
|
F
|
|
|
10,000
|
|
3.22
|
|
2/28/2011
|
|
3 year
|
|
|
|
F
|
|
|
10,000
|
|
3.62
|
|
9/08/2011
|
|
3 year
|
|
|
|
F
|
|
|
10,500
|
|
3.21
|
|
3/05/2012
|
|
4 year
|
|
|
|
F
|
|
|
10,000
|
|
3.90
|
|
9/10/2012
|
|
4 year
|
|
|
|
F
|
|
|
10,000
|
|
2.32
|
|
3/18/2013
|
|
5 yr./2 yr.
|
|
3/18/2010
|
|
F
|
|
|
10,000
|
|
4.06
|
|
9/09/2013
|
|
5 year
|
|
|
|
F
|
|
|
10,000
|
|
2.58
|
|
8/20/2018
|
|
10 yr./6 mo.
|
|
2/18/2009
|
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
154,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F = fixed rate and V = variable rate
The table below reflects the borrowing activity with the FHLB-P, overnight federal funds. The Federal Reserve discount window program has not been used in 2008, 2007 or 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Average balance during the year
|
|
$
|
130,490
|
|
|
$
|
42,496
|
|
|
$
|
19,442
|
|
|
Year end balance
|
|
|
154,939
|
|
|
|
45,000
|
|
|
|
15,000
|
|
|
Highest month end balance
|
|
|
182,293
|
|
|
|
77,000
|
|
|
|
46,300
|
|
|
Weighted-average interest rate during the year
|
|
|
3.33
|
%
|
|
|
5.22
|
%
|
|
|
5.36
|
%
|
|
Weighted-average interest rate at year end
|
|
|
3.34
|
%
|
|
|
4.56
|
%
|
|
|
5.41
|
%
|
The Corporation had a maximum borrowing capacity (“MBC”) with the FHLB-P of approximately $345 million
as of December 31, 2008 of which the unused capacity was $142.6 million at December 31, 2008. In addition there were
37
$75 million in overnight federal funds line and approximately $8 million of Federal Reserve Discount Window capacity. In connection with its FHLB-P
borrowings, the Corporation is required to hold stock in the FHLB-P. This amount was $7.9 million at December 31, 2008, and $2.8 million at December 31, 2007 and is included in other assets in the accompanying Consolidated Balance
Sheet. The carrying amount of the FHLB-P stock approximates its fair value. On December 23, 2008, the FHLB-P announced it will voluntarily suspend the payment of dividends and the repurchase of excess capital stock until further notice.
10. S
UBORDINATED
D
EBT
The Bank raised an aggregate of $15 million in subordinated debt in
July and August 2008. This subordinated debt has a floating interest rate, which resets quarterly at 90 day LIBOR plus 3.75%, which was 5.75% at December 31, 2008, has a maturity of 10 years, and can be prepaid at the end of 5 years with no
prepayment penalty. Subordinated debt qualifies as Tier II regulatory capital for the first five years from the date of issuance and thereafter is discounted as the subordinated debt approaches maturity, with one fifth of the original amount
excluded from Tier II capital each year during the last five years before maturity. When the remaining maturity is less than one year, the subordinated debt is excluded from Tier II capital. Unamortized subordinated debt issuance costs were $335
thousand at December 31, 2008. These costs are amortized over the term of the debt, as an adjustment to the yield. Interest is payable quarterly and principal is due September 15, 2018.
11. D
ISCLOSURE
ABOUT
F
AIR
V
ALUE
OF
F
INANCIAL
I
NSTRUMENTS
FAS 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
The fair value
of borrowed funds is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings.
Other Liabilities
The carrying amounts of accrued interest payable, accrued taxes payable and other accrued payables approximate fair
value.
Off-Balance Sheet Instruments
Estimated fair
values of the Corporation’s 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.
38
The carrying amount and estimated fair value of the Corporation’s financial instruments as of December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
18,776
|
|
$
|
18,776
|
|
$
|
76,965
|
|
$
|
76,965
|
|
Interest-bearing deposits with other banks
|
|
|
45,100
|
|
|
45,100
|
|
|
1,209
|
|
|
1,209
|
|
Money market funds
|
|
|
5,109
|
|
|
5,109
|
|
|
100
|
|
|
100
|
|
Federal funds sold
|
|
|
—
|
|
|
—
|
|
|
17,000
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
68,985
|
|
|
68,985
|
|
|
95,274
|
|
|
95,274
|
|
Investment securities
|
|
|
108,329
|
|
|
108,329
|
|
|
48,402
|
|
|
48,402
|
|
Mortgage servicing rights
|
|
|
2,205
|
|
|
2,210
|
|
|
2,820
|
|
|
3,881
|
|
Loans held for sale
|
|
|
3,024
|
|
|
3,094
|
|
|
5,125
|
|
|
5,114
|
|
Other assets
|
|
|
79,558
|
|
|
69,226
|
|
|
55,774
|
|
|
55,774
|
|
Net loans
|
|
|
889,245
|
|
|
919,560
|
|
|
794,801
|
|
|
795,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
1,151,346
|
|
$
|
1,171,404
|
|
$
|
1,002,096
|
|
$
|
1,004,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
869,490
|
|
$
|
871,679
|
|
$
|
849,528
|
|
$
|
849,475
|
|
Borrowed funds
|
|
|
154,939
|
|
|
157,344
|
|
|
45,000
|
|
|
45,397
|
|
Subordinated debt
|
|
|
15,000
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
Other liabilities
|
|
|
19,504
|
|
|
19,504
|
|
|
17,217
|
|
|
17,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
1,058,933
|
|
$
|
1,063,527
|
|
$
|
911,745
|
|
$
|
912,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet instruments
|
|
$
|
318,368
|
|
$
|
318,368
|
|
$
|
322,968
|
|
$
|
322,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. F
AIR
V
ALUE
M
EASUREMENT
The following disclosures are made in conjunction with the initial
application of FAS No. 157 “Fair Value Measurements” (“FAS 157”), in 2008.
FAS 157 establishes a fair value hierarchy based on
the nature of data inputs for fair value determinations, under which the Corporation is required to value each asset using assumptions that market participants would utilize to value that asset. When the Corporation uses its own assumptions it is
required to disclose additional information about the assumptions used and the effect of the measurement on earnings or the net change in assets for the period.
The value of the Corporation’s available for sale investment securities, which generally includes state and municipal securities, U.S. government agencies and mortgage backed securities, are reported at fair value. These securities are
valued by an independent third party. The third party’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not
trade on a daily basis, their pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes
(only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities, additional inputs may be used or some market
inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.
U.S. Government agencies are evaluated and
priced using multi-dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage backed securities are evaluated using
matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other investments are evaluated using a broker-quote based application, including quotes from issuers.
The value of the investment portfolio is determined using three broad levels of inputs:
Level 1 – Quoted prices in active markets for identical securities;
Level 2 – Quoted prices for similar
instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant value drivers are unobservable.
These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following table summarizes the assets at December 31, 2008 that are recognized on the Corporation’s balance sheet
using fair value measurement determined based on the differing levels of input.
Fair Value of Assets Measured on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Cash and cash equivalents
|
|
$
|
68,985
|
|
$
|
68,985
|
|
$
|
—
|
|
$
|
—
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government & agencies
|
|
|
11,170
|
|
|
—
|
|
|
11,170
|
|
|
—
|
|
State & political subdivisions
|
|
|
7,096
|
|
|
—
|
|
|
7,096
|
|
|
—
|
|
Federal agency mortgage backed securities
|
|
|
79,659
|
|
|
—
|
|
|
79,659
|
|
|
—
|
|
Corporate bonds
|
|
|
9,454
|
|
|
—
|
|
|
9,454
|
|
|
—
|
|
Other securities
|
|
|
950
|
|
|
—
|
|
|
950
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured on a recurring basis at fair value
|
|
$
|
177,314
|
|
$
|
68,985
|
|
$
|
108,329
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
The fair value of mortgage servicing rights (“MSRs”) is measured on the Corporation’s balance sheet on a
non-recurring basis. This fair value measurement on a non-recurring basis is determined using level 2 inputs. As of December 31, 2008, the MSR’s fair value was $2.2 million.
The provisions of FAS 157 related to disclosures surrounding non-financial assets and non-financial liabilities have not been applied because in February 2008, the FASB deferred the required implementation of these
disclosures until 2009.
13. 401(K) 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 3.0% of the employee’s base salary. The Corporation’s expenses for the 401(K) Plan were $457 thousand,
$410 thousand and $362 thousand in 2008, 2007 and 2006, respectively.
Effective April 1, 2008 an amendment was made to the 401(K) Plan to provide for
a new class of immediately vested discretionary, non-matching employer contribution. The Corporation’s expense for the non-matching discretionary contribution was $438 thousand in 2008.
14. P
ENSION
AND
P
OSTRETIREMENT
B
ENEFIT
P
LANS
The Corporation has three 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 two non-qualified defined benefit pension plans (“SERP”) which are restricted to certain officers of the
Corporation.
On February 12, 2008, the Corporation amended the QDBP to cease further accruals of benefits effective March 31, 2008, and amended
the 401(K) Plan to provide non-matching employer contributions mentioned previously.
The existing SERP was restricted to certain officers of the
Corporation and provided each participant the equivalent pension benefit on any compensation which exceeded the IRS limits and bonus deferrals made by eligible individuals.
Additionally, effective April 1, 2008, the Corporation added a new SERP which includes certain officers of the Corporation. This new SERP provides that each participant shall receive a pension benefit equal to
what the QDBP would have provided at retirement, reduced by the actuarially equivalent value of the immediately vested discretionary, non-matching employer contribution to the 401(K) Plan made on his or her behalf and their respective frozen QDBP
benefit.
The Corporation also has a postretirement benefit plan (“PRBP”) that covers certain retired employees and a group of current employees.
The PRBP was closed to new participants in 1994. In 2007, the Corporation amended the PRBP to allow for settlement of obligations to certain current and retired employees. Certain retired participant obligations were settled in 2007 and current
employee obligations were settled in 2008.
The 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 (shareholder’s equity) of $4.2 million at that date.
Federal Reserve Bank guidance states that the effects of the initial adoption and subsequent application of FAS 158 are excluded from regulatory capital calculations.
See Note 23 – Regulatory Capital Requirements for more information.
The following table provides information with respect to our QDBP, SERP, and
PRBP, including benefit obligations and funded status, net periodic pension costs, plan assets, cash flows, amortization information and other accounting items.
Actuarial Assumptions Used in the Tables Below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QDBP
|
|
|
SERP*
|
|
|
PRBP
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Used to determine benefit obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.25
|
%
|
|
6.00
|
%
|
|
6.25
|
%
|
|
6.00
|
%
|
|
6.25
|
%
|
|
6.00
|
%
|
|
Rate of increase for future compensation
|
|
N/A
|
|
|
4.00
|
%
|
|
3.50
|
%
|
|
4.00
|
%
|
|
N/A
|
|
|
4.00
|
%
|
|
Used to determine periodic benefit cost for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.25
|
%
|
|
5.75
|
%
|
|
6.25
|
%
|
|
5.75
|
%
|
|
6.25
|
%
|
|
5.75
|
%
|
|
Rate of increase for future compensation
|
|
0.00
|
%
|
|
4.00
|
%
|
|
3.50
|
%
|
|
4.00
|
%
|
|
N/A
|
|
|
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
|
|
|
N/A
|
|
|
9.00
|
%
|
|
Rate to which the cost trend rate is assumed to decline
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
0.00
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
2008
|
|
|
2007
|
|
40
Changes in Benefit Obligations and Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
QDBP
|
|
|
SERP
|
|
|
PRBP
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
32,036
|
|
|
$
|
29,991
|
|
|
$
|
2,037
|
|
|
$
|
1,788
|
|
|
$
|
1,251
|
|
|
$
|
1,881
|
|
|
Service cost
|
|
|
336
|
|
|
|
1,251
|
|
|
|
89
|
|
|
|
60
|
|
|
|
—
|
|
|
|
5
|
|
|
Interest cost
|
|
|
1,701
|
|
|
|
1,752
|
|
|
|
197
|
|
|
|
114
|
|
|
|
64
|
|
|
|
84
|
|
|
Amendments
|
|
|
(4,513
|
)
|
|
|
—
|
|
|
|
1,530
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(128
|
)
|
|
Settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(258
|
)
|
|
|
(235
|
)
|
|
Actuarial (gain) loss
|
|
|
(6
|
)
|
|
|
106
|
|
|
|
55
|
|
|
|
205
|
|
|
|
61
|
|
|
|
(176
|
)
|
|
Benefits paid
|
|
|
(1,101
|
)
|
|
|
(1,071
|
)
|
|
|
(136
|
)
|
|
|
(130
|
)
|
|
|
(181
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31
|
|
$
|
28,453
|
|
|
$
|
32,029
|
|
|
$
|
3,772
|
|
|
$
|
2,037
|
|
|
$
|
937
|
|
|
$
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$
|
32,156
|
|
|
$
|
30,621
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Actual return (loss) on plan assets
|
|
|
(6,914
|
)
|
|
|
1,606
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Employer contribution
|
|
|
2,000
|
|
|
|
1,000
|
|
|
|
136
|
|
|
|
130
|
|
|
|
439
|
|
|
|
415
|
|
|
Plan participants’ contribution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Benefits paid
|
|
|
(1,101
|
)
|
|
|
(1,071
|
)
|
|
|
(136
|
)
|
|
|
(130
|
)
|
|
|
(181
|
)
|
|
|
(180
|
)
|
|
Settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(258
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
$
|
26,141
|
|
|
$
|
32,156
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at year end (plan assets less benefit obligation)
|
|
$
|
(2,312
|
)
|
|
$
|
127
|
|
|
$
|
(3,772
|
)
|
|
$
|
(2,037
|
)
|
|
$
|
(937
|
)
|
|
$
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in the consolidated balance sheet as other assets (liabilities) & accumulated other comprehensive income including
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost/(accrued liability)
|
|
$
|
8,693
|
|
|
$
|
6,414
|
|
|
$
|
(1,903
|
)
|
|
$
|
(1,622
|
)
|
|
$
|
(570
|
)
|
|
$
|
(914
|
)
|
|
Accumulated other comprehensive income
|
|
|
(11,005
|
)
|
|
|
(6,287
|
)
|
|
|
(1,869
|
)
|
|
|
(415
|
)
|
|
|
(367
|
)
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(2,312
|
)
|
|
$
|
127
|
|
|
$
|
(3,772
|
)
|
|
$
|
(2,037
|
)
|
|
$
|
(937
|
)
|
|
$
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Includes SERP I and SERP II which are combined for disclosure purposes.
|
The following tables provide the components of net periodic pension costs for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QDBP Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
337
|
|
|
$
|
1,251
|
|
|
$
|
1,155
|
|
|
Interest cost
|
|
|
1,701
|
|
|
|
1,752
|
|
|
|
1,591
|
|
|
Expected return on plan assets
|
|
|
(2,586
|
)
|
|
|
(2,547
|
)
|
|
|
(2,223
|
)
|
|
Amortization of prior service cost
|
|
|
16
|
|
|
|
81
|
|
|
|
81
|
|
|
Amortization of net actuarial (gain) loss
|
|
|
235
|
|
|
|
457
|
|
|
|
488
|
|
|
Curtailment
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
(280
|
)
|
|
$
|
994
|
|
|
$
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
90
|
|
|
$
|
60
|
|
|
$
|
36
|
|
|
Interest cost
|
|
|
197
|
|
|
|
114
|
|
|
|
99
|
|
|
Amortization of prior service cost
|
|
|
131
|
|
|
|
44
|
|
|
|
49
|
|
|
Amortization of net actuarial (gain) loss
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
418
|
|
|
$
|
244
|
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRBP Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
12
|
|
|
Interest cost
|
|
|
64
|
|
|
|
84
|
|
|
|
108
|
|
|
Settlement
|
|
|
153
|
|
|
|
123
|
|
|
|
—
|
|
|
Amortization of transition obligation (asset)
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
|
Amortization of prior service cost
|
|
|
(202
|
)
|
|
|
(202
|
)
|
|
|
(137
|
)
|
|
Amortization of net actuarial (gain) loss
|
|
|
55
|
|
|
|
89
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
96
|
|
|
$
|
125
|
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FAS 158
The following reflects 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
After
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
|
|
41
Estimated amounts that will be amortized from accumulated other comprehensive income over the next fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
QDBP
|
|
SERP
|
|
PRBP
|
|
|
Expected 2009 amortization of transition obligation
|
|
$
|
—
|
|
$
|
—
|
|
$
|
26
|
|
|
Expected 2009 amortization of prior service cost (benefit)
|
|
$
|
16
|
|
$
|
131
|
|
$
|
(202
|
)
|
|
Expected 2009 amortization of net loss
|
|
$
|
235
|
|
$
|
—
|
|
$
|
55
|
|
Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Asset
Allocation
|
|
|
Percentage of
QDBP Plan
Assets at
December 31
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
Equity securities*
|
|
50% - 65
|
%
|
|
51
|
%
|
|
65
|
%
|
|
Debt securities
|
|
30% - 45
|
%
|
|
36
|
%
|
|
34
|
%
|
|
Cash reserves**
|
|
1% - 5
|
%
|
|
13
|
%
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Includes Bryn Mawr Bank Corporation common stock in the amount of $633,000 (2%) and $721,000 (2%) at December 31, 2008 and 2007, respectively.
|
|
**
|
Cash reserves are above the target asset allocation range due to the Corporation’s $2 million contribution to the plan on December 31, 2008.
|
The expected rate of return on plan assets in the QDBP was selected by Management after consultation with the Corporation’s 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 Corporation’s 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 Corporation’s Board of Directors. The QDBP is allowed to
retain approximately 2.50% of Bryn Mawr Bank Corporation common stock.
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
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
1,485
|
|
$
|
133
|
|
$
|
204
|
|
2010
|
|
|
1,571
|
|
|
132
|
|
|
202
|
|
2011
|
|
|
1,615
|
|
|
132
|
|
|
200
|
|
2012
|
|
|
1,640
|
|
|
132
|
|
|
198
|
|
2013
|
|
|
1,687
|
|
|
132
|
|
|
193
|
|
2014-2018
|
|
$
|
9,762
|
|
$
|
1,111
|
|
$
|
945
|
Other Pension and Post Retirement Benefit Information
In 2005, the Corporation capped the maximum payment under the PRBP at 120% of the 2005 benefit. The cost is at the cap in 2008. The long term impact of the cap will be to
make the cost trend rate assumed for 2008 immaterial.
Expected Contribution to be Paid in the Next Fiscal Year
Based on the status of the Corporation’s QDBP at December 31, 2008 no minimum funding requirement is anticipated for 2009. The 2009 expected contribution for
the SERPS is $136 thousand.
15. I
NCOME
T
AXES
AND
FIN 48
The components of the net deferred tax asset (liabilities) as of
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Loan and lease loss reserve
|
|
$
|
3,616
|
|
|
$
|
2,845
|
|
|
Other reserves
|
|
|
393
|
|
|
|
244
|
|
|
Defined benefit plans
|
|
|
5,500
|
|
|
|
3,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
9,509
|
|
|
|
6,440
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Other reserves
|
|
|
113
|
|
|
|
(171
|
)
|
|
QDBP
|
|
|
(3,043
|
)
|
|
|
(2,245
|
)
|
|
Originated mortgage servicing rights
|
|
|
(772
|
)
|
|
|
(987
|
)
|
|
Unrealized appreciation on
investment securities
|
|
|
(329
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
(4,031
|
)
|
|
|
(3,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
5,478
|
|
|
$
|
2,891
|
|
|
|
|
|
|
|
|
|
|
|
There was no valuation allowance as of December 31, 2008, 2007 and 2006 as management believes 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)
|
|
2008
|
|
2007
|
|
2006
|
|
|
Currently payable
|
|
$
|
4,413
|
|
$
|
6,491
|
|
$
|
7,185
|
|
|
Deferred
|
|
|
600
|
|
|
82
|
|
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,013
|
|
$
|
6,573
|
|
$
|
6,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
Tax
Rate
%
|
|
|
2007
|
|
|
Tax
Rate
%
|
|
|
2006
|
|
|
Tax
Rate
%
|
|
|
Computed tax expense at statutory federal rate
|
|
$
|
5,018
|
|
|
35.0
|
|
|
$
|
7,060
|
|
|
35.0
|
|
|
$
|
6,792
|
|
|
35.0
|
|
|
Tax-exempt income
|
|
|
(270
|
)
|
|
(1.9
|
)
|
|
|
(412
|
)
|
|
(2.0
|
)
|
|
|
(266
|
)
|
|
(1.4
|
)
|
|
Other, net
|
|
|
265
|
|
|
1.9
|
|
|
|
(75
|
)
|
|
(0.4
|
)
|
|
|
163
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
5,013
|
|
|
35.0
|
|
|
$
|
6,573
|
|
|
32.6
|
|
|
$
|
6,689
|
|
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
The Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes” (“FIN 48”) on January 1, 2007. As required by FIN 48, which clarifies FAS 109, Accounting for Income Taxes,” the Corporation recognizes the financial statement benefit of a tax position only after determining that the
Corporation would more likely than not sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50
percent likelihood of being realized upon settlement with the relevant tax authority. At the adoption date, the Corporation applied these criteria to all tax positions for which the statute of limitations remained open. There were no adjustments to
retained earnings for unrecognized tax benefits as a result of the implementation of FIN 48.
The Corporation is subject to income taxes in the U.S.
federal jurisdiction, and in multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by tax authorities for the years before 2005. The Corporation recently closed and settled with the Internal
Revenue Service an examination of the 2005 tax year. Resolution of the examination did not have any material impact to the financial position of the Corporation
The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense.
No interest or penalties were
accrued in 2008.
There were no FIN 48 liabilities accrued during 2007 or 2008.
16. S
TOCK
O
PTION
P
LAN
:
The Corporation permits the issuance of stock options, dividend equivalents, performance awards, stock appreciation rights, restricted stock and/or restricted stock units
to employees and directors of the Corporation under several plans. The terms and conditions of awards under the plans are determined by the Corporation’s Compensation Committee.
On April 25, 2007, the Shareholders approved the Corporation’s “2007 Long-Term Incentive Plan” (“LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were
made available for award grants under the LTIP. As of December 31, 2007, a total of 300,496 shares were available for grant. In 2008, a total of 130,514 grants were awarded as non-qualified stock options under the LTIP and will vest over a five
year period from the date of grant. As of December 31, 2008, there are 14,189 shares available for grant under the prior plan. The total options available for grant under all plans are 180,671 shares. The exercise price for stock options issued
under the LTIP is the closing price for the stock on the day preceding the date of the grant. The price for options issued under the prior plan is set at the last sale price for the stock on the day preceding the date of the grant. The
Corporation’s practice is to issue option related shares from authorized but unissued shares or treasury.
Grant data is in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Under
Option
|
|
|
Available
for
Option
|
|
|
Price
Per
Share
|
|
Weighted
Average
Exercise
Price
|
|
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
|
|
Options granted
|
|
—
|
|
|
428,996
|
|
|
|
|
|
|
|
|
Options exercised
|
|
132,500
|
|
|
(132,500
|
)
|
|
$
|
22.00 - $23.77
|
|
|
22.05
|
|
Options expired
|
|
(61,150
|
)
|
|
—
|
|
|
|
—
|
|
|
15.03
|
|
Options forfeited
|
|
(500
|
)
|
|
500
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
860,750
|
|
|
311,185
|
|
|
$
|
10.50 - $23.77
|
|
$
|
18.52
|
|
Options authorized
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Options granted
|
|
130,514
|
|
|
(130,514
|
)
|
|
$
|
24.27
|
|
|
24.27
|
|
Options exercised
|
|
79,450
|
|
|
—
|
|
|
$
|
10.50 - $21.21
|
|
|
14.22
|
|
Options expired
|
|
(8,750
|
)
|
|
—
|
|
|
$
|
18.91 - $21.21
|
|
|
20.95
|
|
Options forfeited
|
|
(1,250
|
)
|
|
—
|
|
|
$
|
22.00 - $22.00
|
|
|
22.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
901,814
|
|
|
180,671
|
|
|
$
|
10.50 - $24.27
|
|
$
|
19.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information pertaining to options outstanding at December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Range of Shares Under Option at December 31, 2008
|
|
Shares
Under
Option
|
|
Price Per Share
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
29,000
|
|
$
|
10.50 - $10.75
|
|
1.7
|
|
$
|
10.57
|
|
29,000
|
|
$
|
10.57
|
|
89,800
|
|
$
|
12.25 - $15.15
|
|
1.9
|
|
$
|
13.62
|
|
89,800
|
|
$
|
13.62
|
|
288,700
|
|
$
|
16.25 - $18.91
|
|
5.2
|
|
$
|
18.35
|
|
288,700
|
|
$
|
18.35
|
|
494,314
|
|
$
|
19.11 - $24.27
|
|
7.8
|
|
$
|
22.19
|
|
257,142
|
|
$
|
20.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
901,814
|
|
$
|
10.50
-
$24.27
|
|
6.2
|
|
$
|
19.70
|
|
664,642
|
|
$
|
18.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares exercisable and weighted average exercise price at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Shares exercisable
|
|
|
664,642
|
|
|
721,166
|
|
|
778,525
|
|
Weighted average exercise price
|
|
$
|
18.43
|
|
$
|
17.83
|
|
$
|
17.58
|
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 issued during:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected dividend yield
|
|
|
2.29
|
%
|
|
|
2.36% - 2.02
|
%
|
|
|
1.94% - 2.03
|
%
|
|
Expected volatility of Corporations’ stock
|
|
|
21.9
|
%
|
|
|
20.0 - 23.9
|
%
|
|
|
23.6 - 24.6
|
%
|
|
Risk-free interest rate
|
|
|
3.39
|
%
|
|
|
4.4 - 5.0
|
%
|
|
|
5.00
|
%
|
|
Expected life in years
|
|
|
7.0
|
|
|
|
6.9 - 7.0
|
|
|
|
6.0 - 6.8
|
|
|
Weighted average fair value of options granted
|
|
$
|
5.27
|
|
|
$
|
4.90 - $6.82
|
|
|
$
|
6.45
|
|
43
The expected dividend yield is based on the company’s annual dividend amount as a percentage of the average
stock price at the time of the grant. Expected volatility of the Corporation’s stock is based on the historic volatility of the company’s stock price. The risk free interest rate is 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 following table provides information about options
outstanding for the twelve months ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
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
|
|
860,750
|
|
|
$
|
18.52
|
|
$
|
4.04
|
|
789,900
|
|
|
$
|
17.66
|
|
$
|
3.81
|
|
934,308
|
|
|
$
|
17.44
|
|
$
|
3.74
|
|
Granted
|
|
130,514
|
|
|
|
24.27
|
|
|
5.27
|
|
132,500
|
|
|
|
22.05
|
|
|
4.96
|
|
11,375
|
|
|
|
22.89
|
|
|
6.44
|
|
Forfeited
|
|
(1,250
|
)
|
|
|
22.00
|
|
|
4.90
|
|
(500
|
)
|
|
|
22.00
|
|
|
4.90
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Expired
|
|
(8,750
|
)
|
|
|
20.95
|
|
|
4.77
|
|
—
|
|
|
|
—
|
|
|
—
|
|
(4,500
|
)
|
|
|
21.31
|
|
|
4,84
|
|
Exercised
|
|
(79,450
|
)
|
|
|
14.22
|
|
|
2.87
|
|
(61,150
|
)
|
|
|
15.03
|
|
|
3.11
|
|
(151,283
|
)
|
|
|
16.59
|
|
|
3.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
901,814
|
|
|
$
|
19.70
|
|
$
|
4.31
|
|
860,750
|
|
|
$
|
18.52
|
|
$
|
4.04
|
|
789,900
|
|
|
$
|
17.66
|
|
$
|
3.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information about unvested options for the twelve months ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
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
|
|
139,584
|
|
|
$
|
5.04
|
|
11,375
|
|
|
$
|
6.44
|
|
33,334
|
|
|
$
|
3.99
|
|
Granted
|
|
130,514
|
|
|
|
5.27
|
|
132,500
|
|
|
|
4.96
|
|
11,375
|
|
|
|
6.44
|
|
Vested
|
|
(31,676
|
)
|
|
|
5.17
|
|
(3,791
|
)
|
|
|
6.44
|
|
(33,334
|
)
|
|
|
3.98
|
|
Forfeited
|
|
(1,250
|
)
|
|
|
4.90
|
|
(500
|
)
|
|
|
4.90
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested options, end of period
|
|
237,172
|
|
|
$
|
5.15
|
|
139,584
|
|
|
$
|
5.04
|
|
11,375
|
|
|
$
|
6.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Proceeds from strike price of value of options exercised
|
|
$
|
1,130
|
|
$
|
918
|
|
$
|
2,511
|
|
Related tax benefit recognized
|
|
|
185
|
|
|
182
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of options exercised
|
|
$
|
1,315
|
|
$
|
1,100
|
|
$
|
2,804
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of options exercised
|
|
$
|
529
|
|
$
|
520
|
|
$
|
838
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information about options outstanding and exercisable options at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
Options
Outstanding
|
|
Exercisable
Options
|
|
Options
Outstanding
|
|
Exercisable
Options
|
|
Options
Outstanding
|
|
Exercisable
Options
|
|
Number
|
|
|
901,814
|
|
|
664,642
|
|
|
860,750
|
|
|
721,166
|
|
|
789,900
|
|
|
778,525
|
|
Weighted average exercise price
|
|
$
|
19.70
|
|
$
|
18.43
|
|
$
|
18.52
|
|
$
|
17.83
|
|
$
|
17.66
|
|
$
|
17.58
|
|
Aggregate intrinsic value
|
|
$
|
1,449,701
|
|
$
|
1,449,701
|
|
$
|
3,981,430
|
|
$
|
3,831,493
|
|
$
|
4,723,408
|
|
$
|
4,714,695
|
|
Weighted average contractual term
|
|
|
6.0
|
|
|
4.9
|
|
|
6.1
|
|
|
5.4
|
|
|
6.3
|
|
|
6.3
|
The unamortized stock based compensation expense at December 31, 2008 was $1.1 million which will be
recognized over the next 52 months.
44
17. 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 the calculation of earnings per share.
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Numerator
- Net income available to common shareholders
|
|
$
|
9,325
|
|
$
|
13,600
|
|
$
|
12,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
- Weighted average shares outstanding
|
|
|
8,566,938
|
|
|
8,539,904
|
|
|
8,578,050
|
|
Effect of dilutive potential common shares
|
|
|
34,233
|
|
|
93,638
|
|
|
113,579
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share
- Adjusted weighted average shares outstanding
|
|
|
8,601,171
|
|
|
8,633,542
|
|
|
8,691,629
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.09
|
|
$
|
1.59
|
|
$
|
1.48
|
|
Diluted earnings per share
|
|
$
|
1.08
|
|
$
|
1.58
|
|
$
|
1.46
|
|
Antidulitive shares excluded from computation of average dilutive earnings per share
|
|
|
321,812
|
|
|
58,946
|
|
|
2,722
|
|
|
|
|
|
|
|
|
|
|
|
18. O
THER
O
PERATING
I
NCOME
Components of other operating income for the years ended
December 31 include:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Cash management
|
|
$
|
679
|
|
$
|
689
|
|
$
|
542
|
|
Other
|
|
|
648
|
|
|
612
|
|
|
591
|
|
Insurance commissions
|
|
|
365
|
|
|
337
|
|
|
343
|
|
Safe deposit rental income
|
|
|
318
|
|
|
328
|
|
|
330
|
|
Other investment income
|
|
|
476
|
|
|
271
|
|
|
180
|
|
Interest rate floor income
|
|
|
268
|
|
|
155
|
|
|
—
|
|
Rent
|
|
|
179
|
|
|
126
|
|
|
244
|
|
Gain on sale of OREO
|
|
|
—
|
|
|
110
|
|
|
22
|
|
Title insurance
|
|
|
52
|
|
|
65
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
$
|
2,985
|
|
$
|
2,693
|
|
$
|
2,319
|
|
|
|
|
|
|
|
|
|
|
|
19. O
THER
O
PERATING
E
XPENSE
Components of other operating expense for the years ended
December 31 include:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Other
|
|
$
|
1,906
|
|
$
|
1,632
|
|
$
|
1,314
|
|
Temporary help & recruiting
|
|
|
430
|
|
|
561
|
|
|
441
|
|
Loan processing and closing
|
|
|
568
|
|
|
510
|
|
|
435
|
|
Computer processing
|
|
|
525
|
|
|
504
|
|
|
450
|
|
Other taxes
|
|
|
587
|
|
|
500
|
|
|
463
|
|
Travel and entertainment
|
|
|
400
|
|
|
388
|
|
|
355
|
|
Postage
|
|
|
350
|
|
|
342
|
|
|
287
|
|
Director fees
|
|
|
333
|
|
|
339
|
|
|
307
|
|
Telephone
|
|
|
342
|
|
|
291
|
|
|
281
|
|
Stationary & supplies
|
|
|
272
|
|
|
248
|
|
|
221
|
|
Amortization of intangibles
|
|
|
141
|
|
|
—
|
|
|
—
|
|
Amortization of mortgage service rights
|
|
|
367
|
|
|
327
|
|
|
334
|
|
Impairment of mortgage servicing rights
|
|
|
668
|
|
|
21
|
|
|
14
|
|
Interest rate floor expense
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
$
|
6,889
|
|
$
|
5,663
|
|
$
|
4,931
|
|
|
|
|
|
|
|
|
|
|
|
20. 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 2008 and 2007 was as follows:
Following is a summary of these transactions:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
Balance, January 1
|
|
$
|
11,754
|
|
|
$
|
15,711
|
|
|
Additions
|
|
|
263
|
|
|
|
10
|
|
|
Amounts collected
|
|
|
(8,417
|
)
|
|
|
(3,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
3,600
|
|
|
$
|
11,754
|
|
|
|
|
|
|
|
|
|
|
|
Related party deposits amounted to $442 thousand and $632 thousand at December 31, 2008 and 2007,
respectively.
21. F
INANCIAL
I
NSTRUMENTS
WITH
O
FF
-B
ALANCE
S
HEET
R
ISK
AND
C
ONCENTRATION
OF
C
REDIT
R
ISK
Off-Balance Sheet Risk
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in 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.
45
The Corporation’s exposure to credit loss in the event of nonperformance by the counterparty to the financial
instrument of commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for
on-balance sheet financial instruments.
Commitments to extend credit 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, 2008 were $299.6 million. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral varies but may include accounts receivable, marketable securities,
inventory, property, plant and equipment, residential real estate, and income-producing commercial properties.
Standby letters of credit are conditional
commitments issued by the Bank to a customer for a third party. Such standby letters of credits are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in
extending loan facilities to customers. The collateral varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and residential real estate for those commitments for which collateral is deemed
necessary. The Corporation’s obligation under standby letters of credit as of December 31, 2008 amounted to $18.8 million. There were no outstanding bankers’ acceptances as of December 31, 2008.
Concentrations of Credit Risk
The Corporation has a material portion
of its loans in real estate related loans. A predominant percentage of the Corporation’s real estate exposure, both commercial and residential, is in the Corporation’s primary trade area which includes portions of Delaware, Chester,
Montgomery and Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and mitigates this risk to the extent possible in many ways, including the underwriting and assessment of borrower’s capacity to repay.
See Note 4 – Loans and Leases for additional information.
At December 31, 2008, the total first lien interest only residential loans of
$64.6 million included $54.0 million of adjustable rate loans that convert to principal and interest payments between five and ten years after inception and $10.6 million of fixed rate loans that continue as interest only loans until
reaching maturity. At December 31, 2008, the balance sheet also included $978 thousand one to four family residential loans secured by junior lien positions that are interest only loans. These fixed rate loans will remain as interest only
loans until maturity.
As of December 31, 2008, the Corporation had no loans sold with recourse outstanding.
22. 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
$79.9 million as of December 31, 2008. 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 23 – Regulatory
Capital Requirements.
23. 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 Corporation’s and the Bank’s 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.
On February 10,
2009, a Capital Assistance Program was announced to ensure that banking institutions are capitalized with high-quality capital. The program was initiated on February 25, 2009 and evaluates the capital needs of major U.S. banking institutions in
this challenging economic environment. The program will assess if an additional capital buffer is warranted, allow the institution to seek private sources of capital or turn to the government for a temporary source of capital, and is not expected to
be a new capital standard or maintained on an ongoing basis.
Eligibility is dependent on the results of a government stress test, which will be
mandatorily administered to banks with $100 billion plus in assets and if accepted, provides Tier 1 capital assistance. The application deadline for the program is May 25, 2009 and after receiving preliminary approval, six months will be
provided to close the transaction during which time the company may seek to raise private capital. The capital will be senior to common stock, have an equal level of seniority to existing preferred shares and will be required to pay cumulative
dividends to the government at a rate of 9% per annum compounded quarterly. The Corporation is currently evaluating the requirements of the program.
46
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 Corporation’s and the Bank’s Tier II capital ratios are calculated by adding back a portion of the loan loss reserve to the Tier I capital. Management believes that as of
December 31, 2008 and 2007, the Corporation and the Bank had met all capital adequacy requirements to which they were subject. Federal banking regulators have defined specific capital categories, and categories range from a best of “well
capitalized “to a worst of “critically under capitalized.” Both the Corporation and the Bank were classified as “well capitalized” as of December 31, 2008 and 2007.
See Note 14 – Pension and Postretirement Benefit Plans for certain information relating to a reduction in capital and related regulatory capital impact.
The Corporation’s and the Bank’s actual capital amounts and ratios as of December 31, 2008 and 2007 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Actual
|
|
|
Minimum
to be Well
Capitalized
|
|
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (Tier II) Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
115,367
|
|
11.29
|
%
|
|
$
|
102,171
|
|
10
|
%
|
|
Bank
|
|
|
111,739
|
|
10.98
|
%
|
|
|
101,742
|
|
10
|
%
|
|
Tier I Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
90,035
|
|
8.81
|
%
|
|
|
61,303
|
|
6
|
%
|
|
Bank
|
|
|
86,407
|
|
8.49
|
%
|
|
|
61,045
|
|
6
|
%
|
|
Tier I Capital to Quarterly Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
90,035
|
|
8.03
|
%
|
|
|
56,086
|
|
5
|
%
|
|
Bank
|
|
|
86,407
|
|
7.70
|
%
|
|
|
56,116
|
|
5
|
%
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (Tier II) Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
102,896
|
|
11.31
|
%
|
|
$
|
90,980
|
|
10
|
%
|
|
Bank
|
|
|
97,142
|
|
10.72
|
%
|
|
|
90,591
|
|
10
|
%
|
|
Tier I Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
94,655
|
|
10.40
|
%
|
|
|
54,588
|
|
6
|
%
|
|
Bank
|
|
|
88,901
|
|
9.81
|
%
|
|
|
54,354
|
|
6
|
%
|
|
Tier I Capital to Quarterly Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
94,665
|
|
10.42
|
%
|
|
|
45,420
|
|
5
|
%
|
|
Bank
|
|
|
88,901
|
|
9.83
|
%
|
|
|
45,241
|
|
5
|
%
|
24. S
ELECTED
Q
UARTERLY
F
INANCIAL
D
ATA
(U
NAUDITED
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
Quarters Ending 2008
|
|
|
3/31
|
|
6/30
|
|
9/30
|
|
12/31
|
|
Interest income
|
|
$
|
14,062
|
|
$
|
14,232
|
|
$
|
14,802
|
|
$
|
14,838
|
|
Interest expense
|
|
|
5,454
|
|
|
4,929
|
|
|
4,955
|
|
|
5,050
|
|
Subordinated debt
|
|
|
—
|
|
|
—
|
|
|
151
|
|
|
257
|
|
Net interest income
|
|
|
8,608
|
|
|
9,303
|
|
|
9,696
|
|
|
9,531
|
|
Provision for loan and lease losses
|
|
|
854
|
|
|
781
|
|
|
1,063
|
|
|
2,898
|
|
Income before income taxes
|
|
|
4,305
|
|
|
4,751
|
|
|
3,830
|
|
|
1,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income.
|
|
$
|
2,898
|
|
$
|
3,165
|
|
$
|
2,255
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.34
|
|
$
|
0.37
|
|
$
|
0.26
|
|
$
|
0.12
|
|
Diluted earnings per common share
|
|
$
|
0.34
|
|
$
|
0.37
|
|
$
|
0.26
|
|
$
|
0.12
|
|
Dividend declared
|
|
$
|
0.13
|
|
$
|
0.13
|
|
$
|
0.14
|
|
$
|
0.14
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
Quarters Ending 2007
|
|
|
03/31
|
|
6/30
|
|
9/30
|
|
12/31
|
|
Interest income
|
|
$
|
12,521
|
|
$
|
13,250
|
|
$
|
14,147
|
|
$
|
14,300
|
|
Interest expense
|
|
|
4,145
|
|
|
4,736
|
|
|
5,448
|
|
|
5,647
|
|
Net interest income
|
|
|
8,376
|
|
|
8,514
|
|
|
8,699
|
|
|
8,653
|
|
Provision for loan losses
|
|
|
250
|
|
|
240
|
|
|
—
|
|
|
401
|
|
Income before income taxes
|
|
|
5,837
|
|
|
4,585
|
|
|
5,090
|
|
|
4,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,976
|
|
$
|
3,091
|
|
$
|
3,455
|
|
$
|
3,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.46
|
|
$
|
0.36
|
|
$
|
0.41
|
|
$
|
0.36
|
|
Diluted earnings per common share
|
|
$
|
0.46
|
|
$
|
0.36
|
|
$
|
0.40
|
|
$
|
0.36
|
|
Dividend declared
|
|
$
|
0.12
|
|
$
|
0.12
|
|
$
|
0.13
|
|
$
|
0.13
|
|
*
|
Net income for the quarter ended March 31, 2007 includes an $866 thousand after tax gain ($1.3 million pre-tax) relating to the sale of real estate that previously served as
the Corporation’s Wynnewood branch location.
|
25. C
ONDENSED
F
INANCIAL
S
TATEMENTS
The condensed financial statements of the
Corporation (parent company only) as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31 are as follows:
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
57
|
|
|
$
|
2,331
|
|
|
Investments in subsidiaries, at equity in net assets
|
|
|
89,132
|
|
|
|
84,597
|
|
|
Premises and equipment, net
|
|
|
3,074
|
|
|
|
3,172
|
|
|
Other assets
|
|
|
1,111
|
|
|
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
93,374
|
|
|
$
|
90,994
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Accrued taxes payable
|
|
$
|
37
|
|
|
$
|
—
|
|
|
Other liabilities
|
|
|
924
|
|
|
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
961
|
|
|
$
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $1, authorized 100,000,000 issued 11,513,782 shares and 11,434,332 shares as of December 31, 2008 and 2007,
respectively and outstanding 8,592,259 shares and 8,526,084 shares as of December 31, 2008 and 2007, respectively
|
|
$
|
11,514
|
|
|
$
|
11,434
|
|
|
Paid-in capital in excess of par value
|
|
|
12,983
|
|
|
|
11,698
|
|
|
Accumulated other comprehensive income, net of deferred income taxes
|
|
|
(7,995
|
)
|
|
|
(4,304
|
)
|
|
Retained earnings
|
|
|
105,845
|
|
|
|
101,146
|
|
|
Less common stock in treasury, at cost—2,921,523 shares and 2,908,248 shares as of December 31, 2008 and 2007
|
|
|
(29,934
|
)
|
|
|
(29,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
$
|
92,413
|
|
|
$
|
90,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
93,374
|
|
|
$
|
90,994
|
|
|
|
|
|
|
|
|
|
|
|
47
Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
dollars in thousands
)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Dividends from The Bryn Mawr Trust Company
|
|
$
|
4,625
|
|
|
$
|
4,269
|
|
|
$
|
3,948
|
|
|
Interest and other income
|
|
|
933
|
|
|
|
732
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
5,558
|
|
|
|
5,001
|
|
|
|
4,649
|
|
|
Expenses
|
|
|
831
|
|
|
|
682
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed income of subsidiaries
|
|
|
4,727
|
|
|
|
4,319
|
|
|
|
4,122
|
|
|
Equity in undistributed income of subsidiaries
|
|
|
4,632
|
|
|
|
9,298
|
|
|
|
8,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9,359
|
|
|
|
13,617
|
|
|
|
12,775
|
|
|
Federal income tax (expense) benefit
|
|
|
(34
|
)
|
|
|
(17
|
)
|
|
|
(59
|
)
|
|
State income tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,325
|
|
|
$
|
13,600
|
|
|
$
|
12,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
dollars in thousands
)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
9,325
|
|
|
$
|
13,600
|
|
|
$
|
12,716
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed income of subsidiaries
|
|
|
4,632
|
|
|
|
(9,298
|
)
|
|
|
(8,653
|
)
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
98
|
|
|
|
98
|
|
|
Other, net
|
|
|
(2,126
|
)
|
|
|
83
|
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
11,929
|
|
|
|
4,483
|
|
|
|
3,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Subsidiaries
|
|
|
(10,632
|
)
|
|
|
21
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
(10,632
|
)
|
|
|
21
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(4,625
|
)
|
|
|
(4,269
|
)
|
|
|
(3,948
|
)
|
|
Repurchase of treasury stock
|
|
|
(361
|
)
|
|
|
(2,420
|
)
|
|
|
(3,406
|
)
|
|
Proceeds from exercise of stock options
|
|
|
1,415
|
|
|
|
1,100
|
|
|
|
2,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(3,571
|
)
|
|
|
(5,589
|
)
|
|
|
(4,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(2,274
|
)
|
|
|
(1,085
|
)
|
|
|
281
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
2,331
|
|
|
|
3,416
|
|
|
|
3,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
57
|
|
|
$
|
2,331
|
|
|
$
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These statements should be read in conjunction with the Notes to the Consolidated Financial Statements.
26. 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 Corporation’s 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 Corporation’s Banking segment consists of commercial and retail
banking. The Banking segment is evaluated as a single strategic unit which generates revenues from a variety of products and services. The Banking segment generates interest income from its lending (including leases) and investing activities and is
dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources
including service charges on deposit accounts; cash sweep fees, overdraft fees, BOLI income and interchange revenue associated with its Visa Check Card offering.
The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust administration, other related fiduciary services, custody, investment management and advisory services, employee benefits
and IRA administration, estate settlement, tax services and brokerage. Lau Associates is included in the Wealth Management Segment of the Corporation since it has similar economic characteristics, products and services to those of the wealth segment
of the Corporation.
Wealth Management revenues include, for the years ended December 31, 2007 and 2006, $580 thousand and $403 thousand,
respectively, of fees that will no longer be earned relating to one institutional client that was acquired by another financial institution in a business combination on November 16, 2007. Wealth assets under Management and Administration at
December 31, 2007 relating to this client were zero and $296.2 million at December 31, 2006.
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 Corporation’s title insurance and joint mortgage origination activity with a real estate
brokerage organization.
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 Corporation’s insurance agency activities and interest income from notes
receivable which ceased in 2006.
The accounting policies of the Corporation are applied by segment in the following tables. The segments are presented on
a pre-tax basis which is the way management evaluates business results.
The Banking, Wealth Management and Mortgage Banking segments consolidate and
roll-up through the Bank.
48
Segment information for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
2007
|
|
|
|
|
2006
|
|
(dollars in
thousands)
|
|
Banking
|
|
|
Wealth
Manage-
ment
|
|
|
Mortgage
Banking
|
|
|
All
Other
|
|
|
Consolidated
|
|
|
|
|
Banking
|
|
|
Wealth
Manage-
ment
|
|
|
Mortgage
Banking
|
|
|
All
Other
|
|
|
Consolidated
|
|
|
|
|
Banking
|
|
|
Wealth
Manage-
ment
|
|
|
Mortgage
Banking
|
|
|
All
Other
|
|
|
Consolidated
|
|
|
Net interest income
|
|
$
|
37,069
|
|
|
$
|
—
|
|
|
$
|
57
|
|
|
$
|
12
|
|
|
$
|
37,138
|
|
|
|
|
$
|
34,155
|
|
|
$
|
—
|
|
|
$
|
79
|
|
|
$
|
8
|
|
|
$
|
34,242
|
|
|
|
|
$
|
33,108
|
|
|
$
|
—
|
|
|
$
|
111
|
|
|
$
|
80
|
|
|
$
|
33,299
|
|
|
Less loan loss provision
|
|
|
5,596
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,596
|
|
|
|
|
|
891
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
891
|
|
|
|
|
|
832
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after loan loss provision
|
|
|
31,473
|
|
|
|
—
|
|
|
|
57
|
|
|
|
12
|
|
|
|
31,542
|
|
|
|
|
|
33,264
|
|
|
|
—
|
|
|
|
79
|
|
|
|
8
|
|
|
|
33,351
|
|
|
|
|
|
32,376
|
|
|
|
—
|
|
|
|
111
|
|
|
|
80
|
|
|
|
32,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees for investment management and trust services
|
|
|
—
|
|
|
|
13,842
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,842
|
|
|
|
|
|
—
|
|
|
|
13,502
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,502
|
|
|
|
|
|
—
|
|
|
|
12,422
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,422
|
|
|
Service charges on deposit accounts
|
|
|
1,685
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,685
|
|
|
|
|
|
1,464
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,464
|
|
|
|
|
|
1,540
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,540
|
|
|
Other fees and service charges
|
|
|
259
|
|
|
|
—
|
|
|
|
935
|
|
|
|
—
|
|
|
|
1,194
|
|
|
|
|
|
137
|
|
|
|
—
|
|
|
|
978
|
|
|
|
—
|
|
|
|
1,115
|
|
|
|
|
|
46
|
|
|
|
—
|
|
|
|
1,080
|
|
|
|
—
|
|
|
|
1,126
|
|
|
Net gain on sale of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
1,275
|
|
|
|
—
|
|
|
|
1,275
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,250
|
|
|
|
—
|
|
|
|
1,250
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
954
|
|
|
|
—
|
|
|
|
954
|
|
|
Net gain on sale of real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
1,333
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,333
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other operating income
|
|
|
3,137
|
|
|
|
13
|
|
|
|
150
|
|
|
|
176
|
|
|
|
3,476
|
|
|
|
|
|
2,671
|
|
|
|
—
|
|
|
|
256
|
|
|
|
190
|
|
|
|
3,117
|
|
|
|
|
|
1,880
|
|
|
|
—
|
|
|
|
208
|
|
|
|
231
|
|
|
|
2,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
5,081
|
|
|
|
13,855
|
|
|
|
2,360
|
|
|
|
176
|
|
|
|
21,472
|
|
|
|
|
|
5,605
|
|
|
|
13,502
|
|
|
|
2,484
|
|
|
|
190
|
|
|
|
21,781
|
|
|
|
|
|
3,466
|
|
|
|
12,422
|
|
|
|
2,242
|
|
|
|
231
|
|
|
|
18,361
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & wages
|
|
|
12,156
|
|
|
|
5,439
|
|
|
|
864
|
|
|
|
530
|
|
|
|
18,989
|
|
|
|
|
|
11,242
|
|
|
|
4,576
|
|
|
|
1,003
|
|
|
|
295
|
|
|
|
17,116
|
|
|
|
|
|
10,714
|
|
|
|
4,129
|
|
|
|
657
|
|
|
|
254
|
|
|
|
15,754
|
|
|
Fringe benefits
|
|
|
2,918
|
|
|
|
1,080
|
|
|
|
118
|
|
|
|
56
|
|
|
|
4,172
|
|
|
|
|
|
3,515
|
|
|
|
843
|
|
|
|
148
|
|
|
|
42
|
|
|
|
4,548
|
|
|
|
|
|
3,285
|
|
|
|
836
|
|
|
|
120
|
|
|
|
46
|
|
|
|
4,287
|
|
|
Occupancy & bank premises
|
|
|
4,791
|
|
|
|
625
|
|
|
|
251
|
|
|
|
(178
|
)
|
|
|
5,489
|
|
|
|
|
|
4,380
|
|
|
|
551
|
|
|
|
173
|
|
|
|
(164
|
)
|
|
|
4,940
|
|
|
|
|
|
3,827
|
|
|
|
593
|
|
|
|
168
|
|
|
|
(130
|
)
|
|
|
4,458
|
|
|
Other operating expenses
|
|
|
7,595
|
|
|
|
1,417
|
|
|
|
1,422
|
|
|
|
(408
|
)
|
|
|
10,026
|
|
|
|
|
|
6,749
|
|
|
|
1,049
|
|
|
|
724
|
|
|
|
(167
|
)
|
|
|
8,355
|
|
|
|
|
|
5,517
|
|
|
|
1,064
|
|
|
|
630
|
|
|
|
(287
|
)
|
|
|
6,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
27,460
|
|
|
|
8,561
|
|
|
|
2,655
|
|
|
|
—
|
|
|
|
38,676
|
|
|
|
|
|
25,886
|
|
|
|
7,019
|
|
|
|
2,048
|
|
|
|
6
|
|
|
|
34,959
|
|
|
|
|
|
23,343
|
|
|
|
6,622
|
|
|
|
1,575
|
|
|
|
(117
|
)
|
|
|
31,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
9,094
|
|
|
|
5,294
|
|
|
|
(238
|
)
|
|
|
188
|
|
|
|
14,338
|
|
|
|
|
|
12,983
|
|
|
|
6,483
|
|
|
|
515
|
|
|
|
192
|
|
|
|
20,173
|
|
|
|
|
|
12,399
|
|
|
|
5,800
|
|
|
|
778
|
|
|
|
428
|
|
|
|
19,405
|
|
|
Intersegment (revenues) expenses
|
|
|
818
|
|
|
|
181
|
|
|
|
40
|
|
|
|
(1,039
|
)
|
|
|
—
|
|
|
|
|
|
618
|
|
|
|
181
|
|
|
|
40
|
|
|
|
(839
|
)
|
|
|
—
|
|
|
|
|
|
606
|
|
|
|
181
|
|
|
|
10
|
|
|
|
(797
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax segment profit after eliminations
|
|
$
|
9,912
|
|
|
$
|
5,475
|
|
|
$
|
(198
|
)
|
|
$
|
(851
|
)
|
|
$
|
14,338
|
|
|
|
|
$
|
13,601
|
|
|
$
|
6,664
|
|
|
$
|
555
|
|
|
$
|
(647
|
)
|
|
$
|
20,173
|
|
|
|
|
$
|
13,005
|
|
|
$
|
5,981
|
|
|
$
|
788
|
|
|
$
|
(369
|
)
|
|
$
|
19,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of segment (loss) pre-tax profit (loss) after eliminations
|
|
|
69.1
|
%
|
|
|
38.2
|
%
|
|
|
(1.4
|
)%
|
|
|
(5.9
|
)%
|
|
|
100
|
%
|
|
|
|
|
67.4
|
%
|
|
|
33.0
|
%
|
|
|
2.8
|
%
|
|
|
(3.2
|
)%
|
|
|
100
|
%
|
|
|
|
|
67.0
|
%
|
|
|
30.8
|
%
|
|
|
4.1
|
%
|
|
|
(1.9
|
)%
|
|
|
100
|
%
|
Other Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2008
|
|
2007
|
|
2006
|
|
Wealth Management Segment:
|
|
|
|
|
|
|
|
|
|
|
Brokerage assets
(1)
|
|
$
|
75.7
|
|
$
|
85.3
|
|
$
|
76.3
|
|
Assets Under Management – other financial institution
|
|
|
—
|
|
|
—
|
|
|
412.4
|
|
Assets Under Management and Administration – Wealth Division
|
|
|
1,564.1
|
|
|
2,191.8
|
|
|
2,102.4
|
|
Assets Under Management and Administration – Lau
|
|
|
506.6
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Under Management and Administration and Brokerage Assets
|
|
$
|
2,146.4
|
|
$
|
2,277.1
|
|
$
|
2,591.1
|
|
(1)
|
Brokerage assets represent assets held at a registered broker dealer under a networking agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Segment:
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Serviced for Others
|
|
$
|
350,199
|
|
$
|
357,363
|
|
$
|
382,141
|
|
Mortgage Servicing Rights
|
|
$
|
2,205
|
|
$
|
2,820
|
|
$
|
2,883
|
Segment Assets:
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. Premises and equipment and other assets related to the Mortgage Banking and Wealth Management Segments are not meaningful and therefore are not
presented. The Wealth Management Segment assets include, among other smaller amounts, the goodwill associated with Lau Associates of $4.6 million at December 31, 2008.
49
Price Range of Shares
BRYN MAWR BANK CORPORATION
(NASDAQ: BMTC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Bid
|
|
Low Bid
|
|
Dividend
Declared
|
|
2008 HIGH-LOW QUOTATIONS
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
23.13
|
|
$
|
18.75
|
|
$
|
0.13
|
|
Second Quarter
|
|
|
22.26
|
|
|
17.00
|
|
|
0.13
|
|
Third Quarter
|
|
|
28.01
|
|
|
16.30
|
|
|
0.14
|
|
Fourth Quarter
|
|
|
24.48
|
|
|
15.08
|
|
|
0.14
|
|
|
|
|
|
|
2007 HIGH-LOW QUOTATIONS
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.88
|
|
$
|
22.75
|
|
$
|
0.12
|
|
Second Quarter
|
|
|
25.21
|
|
|
22.00
|
|
|
0.12
|
|
Third Quarter
|
|
|
24.98
|
|
|
21.00
|
|
|
0.13
|
|
Fourth Quarter
|
|
|
23.23
|
|
|
20.50
|
|
|
0.13
|
The approximate number of registered holders of record of common stock as of December 31, 2008 was 293.
The shares are traded on the NASDAQ Global Market System under the symbol BMTC. The price information was obtained from NASDQ, IDC.
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