UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
For the fiscal year ended December 31, 2016
Commission file number 001-35746.
BRYN MAWR BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State of other jurisdiction of Incorporation or Organization)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania
(Address of principal executive offices)
23-2434506
(I.R.S. Employer Identification Number)
19010
(Zip Code)
(Registrant’s telephone number, including area code) (610) 525-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock ($1 par value)
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (& 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer ☐
Non-Accelerated Filer ☐
Accelerated Filer
Smaller Reporting Company
☒
☐
Indicate by checkmark whether the Registrant is a shell company (as defined by Rule 126-2 of the Exchange Act): Yes ☐ No ☒
The aggregate market value of shares of common stock held by non-affiliates of Registrant (including fiduciary accounts administered by
affiliates) was $483,647,309 on June 30, 2016 based on the price at which our common stock was last sold on that date.*
As of March 7, 2017, there were 16,969,451 shares of common stock outstanding.
Documents Incorporated by Reference: Portions of the Definitive Proxy Statement of Registrant to be filed with the Commission pursuant
to Regulation 14A with respect to the Registrant’s Annual Meeting of Shareholders to be held on April 20, 2017 (“2017 Proxy Statement”),
as indicated in Parts I and II, are incorporated into this Form 10-K by reference.
*
Registrant does not admit by virtue of the foregoing that its officers and directors are “affiliates” as defined in Rule 405.
Form 10-K
Bryn Mawr Bank Corporation
Index
Item No.
Page
1.
1A.
1B.
2.
3.
4.
Part I
Business ........................................................................................................................................................
Risk Factors ..................................................................................................................................................
Unresolved Staff Comments .........................................................................................................................
Properties ......................................................................................................................................................
Legal Proceedings .........................................................................................................................................
Mine Safety Disclosures ...............................................................................................................................
Part II
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
Securities ...................................................................................................................................................
Selected Financial Data.................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) ....
Quantitative and Qualitative Disclosures about Market Risk .......................................................................
Financial Statements and Supplementary Data .............................................................................................
Change in and Disagreements with Accountants on Accounting and Financial Disclosure .........................
Controls and Procedures ...............................................................................................................................
Other Information .........................................................................................................................................
Part III
Directors and Executive Officers of the Registrant ......................................................................................
Executive Compensation ..............................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .....
Certain Relationships and Related Transactions ...........................................................................................
Principal Accountant Fees and Services .......................................................................................................
Part IV
1
12
22
23
25
25
25
27
28
54
54
119
119
120
120
120
120
120
120
15.
Exhibits and Financial Statement Schedules .................................................................................................
121
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report and the documents incorporated by reference herein may constitute
forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of
1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause actual
results, performance or achievements of the Bryn Mawr Bank Corporation (the “Corporation”) to be materially different
from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-
looking statements include statements with respect to the Corporation’s financial goals, business plans, business prospects,
credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage
servicing rights, the effect of changes in accounting standards, and market and pricing trends loss. The words The words
“may”, “would”, “could”, “will”, “likely”, “expect,” “anticipate,” “intend”, “estimate”, “plan”, “forecast”, “project”
and “believe” and similar expressions are intended to identify such forward-looking statements. The Corporation’s actual
results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors,
including without limitation:
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local, regional, national and international economic conditions and the impact they may have on us and our
customers and our assessment of that impact;
our need for capital;
lower demand for our products and services and lower revenues and earnings could result from an economic
recession;
lower earnings could result from other-than-temporary impairment charges related to our investment securities
portfolios or other assets;
changes in monetary or fiscal policy, or existing statutes, regulatory guidance, legislation or judicial decisions that
adversely affect our business, including changes in federal income tax or other tax regulations;
changes in the level of non-performing assets and charge-offs;
changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory
and accounting requirements;
• other changes in accounting requirements or interpretations;
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the accuracy of assumptions underlying the establishment of provisions for loan and lease losses and estimates in the
value of collateral, and various financial assets and liabilities;
inflation, securities market and monetary fluctuations;
changes in the securities markets with respect to the market values of financial assets and the stability of particular
securities markets;
changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate
sensitivity;
prepayment speeds, loan originations and credit losses;
changes in the value of our mortgage servicing rights;
sources of liquidity and financial resources in the amounts, at the times and on the terms required to support our
future business;
legislation or other governmental action affecting the financial services industry as a whole, us or our subsidiaries
individually or collectively, including changes in laws and regulations (including laws and regulations concerning
taxes, banking, securities and insurance) with which we must comply;
results of examinations by the Federal Reserve Board, including the possibility that such regulator may, among other
things, require us to increase our allowance for loan losses or to write down assets;
our common stock outstanding and common stock price volatility;
fair value of and number of stock-based compensation awards to be issued in future periods;
•
•
• with respect to mergers and acquisitions, our business and the acquired business will not be integrated successfully
or such integration may be more difficult, time-consuming or costly than expected;
revenues following the completion of a merger or acquisition may be lower than expected;
•
• deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including,
without limitation, difficulties in maintaining relationships with employees, may be greater than expected;
• material differences in the actual financial results of our merger and acquisition activities compared with
expectations, such as with respect to the full realization of anticipated cost savings and revenue enhancements within
the expected time frame;
our success in continuing to generate new business in our existing markets, as well as their success in identifying and
penetrating targeted markets and generating a profit in those markets in a reasonable time;
our ability to continue to generate investment results for customers and the ability to continue to develop investment
products in a manner that meets customers’ needs;
changes in consumer and business spending, borrowing and savings habits and demand for financial services in the
relevant market areas;
rapid technological developments and changes;
•
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the effects of competition from other commercial banks, thrifts, mortgage companies, finance companies, credit
unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions
operating in our market areas and elsewhere including institutions operating locally, regionally, nationally and
internationally together with such competitors offering banking products and services by mail, telephone, computer
and the internet;
our ability to continue to introduce competitive new products and services on a timely, cost-effective basis and the
mix of those products and services;
containing costs and expenses;
protection and validity of intellectual property rights;
reliance on large customers;
technological, implementation and cost/financial risks in contracts;
the outcome of pending and future litigation and governmental proceedings;
any extraordinary events (such as natural disasters, acts of terrorism, wars or political conflicts);
ability to retain key employees and members of senior management;
the ability of key third-party providers to perform their obligations to us and our subsidiaries; and
the need for capital, ability to control operating costs and expenses, and to manage loan and lease delinquency rates;
the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities
portfolio;
the inability of key third-party providers to perform their obligations to us;
risks related to our pending merger with Royal Bancshares of Pennsylvania, Inc. (“RBPI”), including, but not limited
to: the risk that required regulatory, shareholder or other approvals are not obtained or other closing conditions are
not satisfied in a timely manner or at all; that prior to the completion of the transaction or thereafter, the
Corporation’s and RBPI’s respective businesses may not perform as expected due to transaction-related uncertainty
or other factors; that the parties are unable to successfully implement integration strategies; the inability of RBPI to
cash out outstanding warrants to purchase RBPI Class A Common Stock; reputational risks and the reaction of the
companies’ customers to the transaction; diversion of management time on merger-related issues; the integration of
acquired business with the Corporation taking longer than anticipated or being more costly to complete; that the
anticipated benefits of the merger, including any anticipated cost savings or strategic gains may be significantly
harder to achieve or take longer than anticipated or fail to be achieved; and
our 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 and the documents
incorporated by reference herein are based upon the Corporation’s beliefs and assumptions as of the date of this Report.
The Corporation assumes no obligation to update any forward-looking statement. In light of these risks, uncertainties and
assumptions, the forward-looking statements discussed in this Report or incorporated documents might not occur and you
should not put undue reliance on any forward-looking statements.
Additional Information About the Merger with RBPI and Where to Find It
In connection with the proposed merger transaction between the Corporation and RBPI, the Corporation will file with
the Securities and Exchange Commission a Registration Statement on Form S-4 that will include a Proxy Statement of
RBPI, and a Prospectus of the Corporation, as well as other relevant documents concerning the proposed transaction.
Shareholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger with
RBPI when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or
supplements to those documents, because they will contain important information.
A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about the Corporation
and RBPI, may be obtained at the SEC’s Internet site (http://www.sec.gov).
The Corporation and RBPI and certain of their directors and executive officers may be deemed to be participants in
the solicitation of proxies from the shareholders of RBPI in connection with the proposed merger. Information about the
directors and executive officers of the Corporation is set forth in the proxy statement for the Corporation’s 2017 annual
meeting of shareholders, expected to be filed with the SEC on a Schedule 14A on March 10, 2017. Information about the
directors and executive officers of RBPI is set forth in the proxy statement for RBPI 2016 annual meeting of shareholders,
as filed with the SEC on a Schedule 14A on March 17, 2016. Additional information regarding the interests of those
participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy
Statement/Prospectus regarding the proposed merger when it becomes available. Free copies of this document may be
obtained as described in the preceding paragraph.
ITEM 1. BUSINESS
GENERAL
PART I
The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of
the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”) was formed and on January 2,
1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in
Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries offer a full range of
personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and
wealth management services, including investment management, trust and estate administration, retirement planning,
custody services, and tax planning and preparation from 25 full-service branches, eight limited-hour retirement community
offices, one limited-service branch, five wealth offices and a full-service insurance agency located throughout
Montgomery, Delaware, Chester, Philadelphia and Dauphin counties of Pennsylvania and New Castle county in Delaware.
The Corporation’s common stock trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.
The goal of the Corporation is to become the premier community bank and wealth management organization in the
greater Philadelphia area. The Corporation’s strategy to achieve this goal includes investing in people and technology to
support its growth, leveraging the strength of its brand, targeting high-potential markets for expansion, basing its sales
strategy on relationships and concentrating on core product solutions. The Corporation strives to strategically broaden the
scope of its product offerings, engaging in inorganic growth by selectively acquiring small to mid-sized banks, insurance
brokerages, wealth management companies, and advisory and planning services firms, and lifting out high-performing
teams where strategically advantageous.
The Corporation operates in a highly competitive market area that includes local, national and regional banks as
competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors
and mutual fund families. The Corporation and its subsidiaries are regulated by many agencies, including the Securities and
Exchange Commission (“SEC”), the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the
Pennsylvania and Delaware Departments of Banking.
WEBSITE DISCLOSURES
The Corporation files with the SEC and makes available, free of charge, through its website, its Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A, and all
amendments to those reports as soon as reasonably practicable after the reports are electronically filed with the SEC. These
reports can be obtained on the Corporation’s website at www.bmtc.com by following the link, “About BMT,” followed by
“Investor Relations.” The information contained on or connected to our website is not incorporated by reference into this
Annual Report on Form 10-K. Further copies of these reports are located at the SEC’s Public Reference Room at 100 F
Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by
calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements,
and other information regarding our filings, at www.sec.gov.
OPERATIONS
•
Bryn Mawr Bank Corporation
The Corporation has no active staff as of December 31, 2016. The Corporation is the sole shareholder of the stock of
the Bank. Additionally, the Corporation performs several functions including shareholder communications, shareholder
recordkeeping, the distribution of dividends and the periodic filing of reports and payment of fees to NASDAQ, the SEC
and other regulatory agencies.
As of December 31, 2016, the Corporation and its subsidiaries had 494 full time and 50 part time employees, totaling
519 full time equivalent staff.
1
ACTIVE SUBSIDIARIES OF THE CORPORATION
The Corporation has three active subsidiaries which provide various services as described below:
•
Lau Associates
Lau Associates LLC, a registered investment advisor, is an independent, family wealth office serving high net worth
individuals and families, with special expertise in planning intergenerational inherited wealth. Lau Associates employed 13
full time employees as of December 31, 2016, which are included in the Corporation’s employment numbers. Lau
Associates LLC is a wholly-owned subsidiary of the Corporation.
•
The Bryn Mawr Trust Company of Delaware
The Bryn Mawr Trust Company of Delaware (“BMTC-DE”) is a limited-purpose trust company located in
Greenville, DE and has the ability to be named and serve as a corporate fiduciary under Delaware law. BMTC-DE
employed seven full-time and two part time employees as of December 31, 2016. BMTC-DE employees are included in the
Corporation’s employment numbers. Being able to serve as a corporate fiduciary under Delaware law is advantageous as
Delaware statutes are widely recognized as being favorable with respect to the creation of tax-advantaged trust structures,
LLCs and related wealth transfer vehicles for families and individuals throughout the United States. BMTC-DE is a
wholly-owned subsidiary of the Corporation.
•
The Bryn Mawr Trust Company
The Bank is engaged in commercial and retail banking business, providing basic banking services, including the
acceptance of demand, time and savings deposits and the origination of commercial, real estate and consumer loans and
other extensions of credit including leases. The Bank also provides a full range of wealth management services including
trust administration and other related fiduciary services, custody services, investment management and advisory services,
employee benefit account and IRA administration, estate settlement, tax services, financial planning and brokerage
services. As of December 31, 2016, the market value of assets under management, administration, supervision and asset
management/brokerage by the Bank’s Wealth Management Division was $11.3 billion. The Bank’s employees are included
in the Corporation’s employment numbers above.
The Bank presently operates 25 full-service branches, eight limited-hour retirement community offices, one limited-
service branch and three wealth management offices located throughout Montgomery, Delaware, Chester, Philadelphia and
Dauphin counties of Pennsylvania. See the section titled “COMPETITION” later in this item for additional information.
ACTIVE SUBSIDIARIES OF THE BANK
The Bank has three active subsidiaries providing various services as described below:
•
Key Capital Mortgage, Inc.
Key Capital Mortgage, Inc. (“KCMI”) is a wholly-owned subsidiary of the Bank, located in Media, Pennsylvania,
which was established on October 1, 2015. KCMI specializes in providing non-traditional commercial mortgage loans to
small businesses throughout the United States. As of December 31, 2016, KCMI employed six full-time employees which
are included in the Corporation’s employment numbers above.
•
Powers Craft Parker & Beard, Inc.
Powers Craft Parker & Beard, Inc. (“PCPB”) is a wholly-owned subsidiary of the Bank, headquartered in Rosemont,
Pennsylvania. On October 1, 2014, the Bank acquired 100% of the stock of PCPB and merged the entity with and into its
existing full-service insurance agency, Insurance Counsellors of Bryn Mawr, Inc. (“ICBM”). The surviving entity operates
under the PCPB name. On April 1, 2015, the Bank acquired the Robert J. McAllister Agency, Inc. (“RJM”), an insurance
brokerage headquartered in Rosemont, Pennsylvania. RJM was subsequently merged into PCPB. PCPB is a full-service
insurance agency, through which the Bank offers insurance and related products and services to its customer base. This
includes casualty, property and allied insurance lines, as well as life insurance, annuities, medical insurance and accident
and health insurance for groups and individuals.
2
As of December 31, 2016, PCPB employed 14 full-time employees, of whom 13 are licensed insurance agents, along
with two part-time employees, both of whom are licensed insurance agents. PCPB employees are included in the
Corporation’s employment numbers above.
•
Bryn Mawr Equipment Finance, Inc.
Bryn Mawr Equipment Finance, Inc. (“BMEF”), a wholly-owned subsidiary of the Bank, is a Delaware corporation
registered to do business in Pennsylvania. BMEF is a small-ticket equipment financing company servicing customers
nationwide from its Montgomery County, Pennsylvania location. BMEF had nine employees as of December 31, 2016.
BMEF employees are included in the Corporation’s employment numbers above.
BUSINESS COMBINATIONS
The Corporation and its subsidiaries engaged in the following business combinations since January 1, 2012:
• Royal Bancshares of Pennsylvania, Inc. (pending)
On January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal
Bancshares of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an
aggregate value of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge with and
into the Corporation and RBA will merge with and into the Bank. The Acquisition, which is expected to add
approximately $602 million in loans and $630 million in deposits (based on unaudited December 31, 2016 financial
information), strengthens the Corporation’s position as the largest community bank in Philadelphia’s western suburbs
and, based on deposits, ranks it as the eighth largest community bank headquartered in Pennsylvania. The Acquisition,
which will expand the Corporation's distribution network by providing entry into the new markets of New Jersey and
Berks County, Pennsylvania, and a new physical presence in Philadelphia County, Pennsylvania is expected to close
during the third quarter of 2017.
• Robert J. McAllister Agency, Inc.
On April 1, 2015, the acquisition of RJM, an insurance brokerage headquartered in Rosemont, Pennsylvania, was
completed. Consideration paid totaled $1.0 million, of which $500 thousand was paid at closing, one contingent
payment of $85 thousand (out of a maximum of $100 thousand) was paid during the second quarter of 2016 and four
remaining contingent cash payments, not to exceed $100 thousand each, will be payable on each of March 31, 2017,
March 31, 2018, March 31, 2019, and March 31, 2020, subject to the attainment of certain revenue targets during the
related periods. The acquisition enhanced PCPB’s ability to offer comprehensive insurance solutions to both individual
and business clients.
• Continental Bank Holdings, Inc.
On January 1, 2015, the merger of Continental Bank Holdings, Inc. (“CBH”) with and into the Corporation (the “CBH
Merger”), and the merger of Continental Bank with and into the Bank, were completed. Consideration paid totaled
$125.1 million, comprised of 3,878,383 shares (which included fractional shares paid in cash) of the Corporation’s
common stock, the assumption of options to purchase Corporation common stock valued at $2.3 million and $1.3
million for the cash-out of certain warrants. The Merger initially added $424.7 million of loans, $181.8 million of
investments, $481.7 million of deposits and ten new branches. The acquisition of CBH enabled the Corporation to
expand its footprint into a significant portion of Montgomery County, Pennsylvania.
• Powers Craft Parker and Beard, Inc.
On October 1, 2014, the acquisition of PCPB, an insurance brokerage headquartered in Rosemont, Pennsylvania, was
completed. The consideration paid by the Corporation was $7.0 million, of which $5.4 million was paid at closing and
two of three contingent payments, of $542 thousand each, were paid during the fourth quarter of 2015 and 2016. The
remaining $542 thousand consists of one contingent payment, not to exceed $542 thousand. The payment is subject to
the attainment of certain revenue targets during the applicable period. The addition enabled the Corporation to offer a
full range of insurance products to both individual and business clients.
3
• First Bank of Delaware
On November 17, 2012, the acquisition of $70.3 million of deposits, $76.6 million of loans and a branch location from
First Bank of Delaware (“FBD”), by the Corporation was completed. The consideration paid by the Corporation
totaled $10.6 million cash, paid at closing. The transaction, which was accounted for as a business combination,
enabled the Corporation to expand its banking arm into the Delaware market by opening its first full-service branch
there, complementing its existing wealth management operations in the state.
• Davidson Trust Company
On May 15, 2012, the acquisition of Davidson Trust Company (“DTC”) by the Corporation was completed. The
consideration paid by the Corporation totaled $10.5 million, of which $8.4 million was paid in cash, at closing and the
remaining $2.1 million was paid in equal installments on November 14, 2012, May 14, 2013 and November 14, 2013.
The transaction was accounted for as a business combination. The acquisition of DTC initially increased the
Corporation’s wealth management division assets under management by $1.0 billion. The structure of the
Corporation’s existing wealth management segment allowed for the immediate integration of DTC and was able to
take advantage of the various synergies that exist between the two companies.
SOURCES OF THE CORPORATION’S REVENUE
Continuing Operations
See Note 29, “Segment Information,” in the Notes to the Consolidated Financial Statements located in this Annual
Report on Form 10-K for additional information. The Corporation had no discontinued operations in 2014, 2015 or 2016.
FINANCIAL INFORMATION ABOUT SEGMENTS
The financial information concerning the Corporation’s business segments is incorporated by reference to this
Annual Report on Form 10-K in the section captioned Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) and Note 29, “Segment Information,” in the Notes to Consolidated Financial Statements.
COMPETITION
The Corporation and its subsidiaries, including the Bank, compete for deposits, loans, wealth management and
insurance services in Delaware, Montgomery, Chester, Dauphin and Philadelphia counties in Pennsylvania and New Castle
County in Delaware. The Corporation has a significant presence in the Philadelphia suburbs along the Route 30 corridor,
also known as the “Main Line”. The Corporation has 25 full-service branches, eight limited-hour retirement community
offices, one limited-service branch, one insurance agency and five wealth management offices.
The markets in which the Corporation competes are highly competitive. The Corporation’s direct competition in
attracting business is mainly from commercial banks, investment management companies, savings and loan associations,
trust companies and insurance agencies. The Corporation also competes with credit unions, on-line banking enterprises,
consumer finance companies, mortgage companies, insurance companies, stock brokerage companies, investment advisory
companies and other entities providing one or more of the services and products offered by the Corporation.
The Corporation is able to compete with the other firms because of its consistent level of customer service, excellent
reputation, professional expertise, comprehensive product line, and its competitive rates and fees. However, there are
several negative factors which can hinder the Corporation’s ability to compete with large institutions such as its limited
number of locations, smaller advertising and technology budgets, and a general inability to scale its operating platform, due
to its size.
The acquisition of Lau Associates in July 2008 and the formation of BMTC-DE allowed the Corporation to establish
a presence in the State of Delaware, where it competes for wealth management business. The November 2012 acquisition
of certain loan and deposit accounts and a branch location from First Bank of Delaware enabled the Corporation to further
expand its banking segment in the greater Wilmington, Delaware area.
The acquisition of First Keystone Financial, Inc. (“FKF”) in 2010 expanded the Corporation’s footprint significantly
into Delaware County, Pennsylvania, and the acquisition the Private Wealth Management Group of the Hershey Trust
4
Company (“PWMG”) in 2011 enabled the Wealth Management Division to extend into central Pennsylvania by continuing
to operate the former PWMG offices located in Hershey, Pennsylvania. The May 2012 acquisition of DTC allowed the
Corporation to further expand its range of services and bring deeper market penetration in our core market area. The
October 2014 acquisition of PCPB and the April 2015 acquisition of RJM enabled the Bank to expand its range of
insurance solutions to both individuals as well as business clients. The January 2015 merger with CBH expanded the
Corporation’s reach well into Montgomery County Pennsylvania, and gave the Bank the opportunity to have a branch
office in the City of Philadelphia.
The Bank’s newest subsidiary, KCMI, which was established on October 1, 2015 enables the Corporation to compete
on a national level for the specialized lending market that focuses on non-traditional small business borrowers with well-
established businesses. In addition, BMEF competes on a national level for its equipment leasing customers.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The geographic information required by Item 101(d) of Regulation S-K promulgated under the Securities Exchange
Act of 1934, as amended, is impracticable for the Corporation to calculate; however, the Corporation does not believe that a
material amount of revenues in any of the last three years was attributable to customers outside of the United States, nor
does it believe that a material amount of its long-lived assets, in any of the past three years, was located outside of the
United States.
SUPERVISION AND REGULATION
The Corporation and its subsidiaries, including the Bank, are subject to extensive regulation under both federal and
state law. To the extent that the following information describes statutory provisions and regulations which apply to the
Corporation and its subsidiaries, it is qualified in its entirety by reference to those statutory provisions and regulations:
• Bank Holding Company Regulation
The Corporation, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as
amended (the “Act”). The Act limits the business of bank holding companies to banking, managing or controlling banks,
performing certain servicing activities for subsidiaries and engaging in such other activities as the Federal Reserve Board
may determine to be closely related to banking. The Corporation and its non-bank subsidiaries are subject to the
supervision of the Federal Reserve Board and the Corporation is required to file, with the Federal Reserve Board, an annual
report and such additional information as the Federal Reserve Board may require pursuant to the Act and the regulations
which implement the Act. The Federal Reserve Board also conducts inspections of the Corporation and each of its non-
banking subsidiaries.
The Act requires each bank holding company to obtain prior approval by the Federal Reserve Board before it may
acquire (i) direct or indirect ownership or control of more than 5% of the voting shares of any company, including another
bank holding company or a bank, unless it already owns a majority of such voting shares, or (ii) all, or substantially all, of
the assets of any company.
The Act also prohibits a bank holding company from engaging in, or from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve
Board, by order or regulation, has found such activities to be so closely related to banking or to managing or controlling
banks as to be appropriate. The Federal Reserve Board has, by regulation, determined that certain activities are so closely
related to banking or to managing or controlling banks, so as to permit bank holding companies, such as the Corporation,
and its subsidiaries formed for such purposes, to engage in such activities, subject to obtaining the Federal Reserve Board’s
approval in certain cases.
Under the Act, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension or provision of credit, lease or sale of property or furnishing any service to
a customer on the condition that the customer provide additional credit or service to the bank, to its bank holding company
or any other subsidiaries of its bank holding company or on the condition that the customer refrain from obtaining credit or
service from a competitor of its bank holding company. Further, the Bank, as a subsidiary bank of a bank holding company,
such as the Corporation, is subject to certain restrictions on any extensions of credit it provides to the Corporation or any of
its non-bank subsidiaries, investments in the stock or securities thereof, and on the taking of such stock or securities as
collateral for loans to any borrower.
5
In addition, the Federal Reserve Board may issue cease-and-desist orders against bank holding companies and non-
bank subsidiaries to stop actions believed to present a serious threat to a subsidiary bank. The Federal Reserve Board also
regulates certain debt obligations and changes in control of bank holding companies.
Under the Federal Deposit Insurance Act, as amended by the Dodd-Frank Act, a bank holding company is required to
serve as a source of financial strength to each of its subsidiary banks and to commit resources, including capital funds
during periods of financial stress, to support each such bank. Consistent with this “source of strength” requirement for
subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been
sufficient to fund fully the dividends, and the prospective rate of earnings retention appears to be consistent with the
company’s capital needs, asset quality and overall financial condition.
Federal law also grants to federal banking agencies the power to issue cease and desist orders when a depository
institution or a bank holding company or an officer or director thereof is engaged in or is about to engage in unsafe and
unsound practices. The Federal Reserve Board may require a bank holding company, such as the Corporation, to
discontinue certain of its activities or activities of its other subsidiaries, other than the Bank, or divest itself of such
subsidiaries if such activities cause serious risk to the Bank and are inconsistent with the Bank Holding Company Act or
other applicable federal banking laws.
• Federal Reserve Board and Pennsylvania Department of Banking and Securities Regulation
The Corporation’s Pennsylvania state chartered bank, The Bryn Mawr Trust Company, is regulated and supervised
by the Pennsylvania Department of Banking and Securities (the “Department of Banking”) and subject to regulation by The
Federal Reserve Board and the FDIC. The Department of Banking and the Federal Reserve Board regularly examine the
Bank’s reserves, loans, investments, management practices and other aspects of its operations and the Bank must furnish
periodic reports to these agencies. The Bank is a member of the Federal Reserve System.
The Bank’s operations are subject to certain requirements and restrictions under federal and state laws, including
requirements to maintain reserves against deposits, limitations on the interest rates that may be paid on certain types of
deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon,
limitations on the types of investments that may be made and the types of services which may be offered. Various
consumer laws and regulations also affect the operations of the Bank. These regulations and laws are intended primarily for
the protection of the Bank’s depositors and customers rather than holders of the Corporation’s stock.
The regulations of the Department of Banking restrict the amount of dividends that can be paid to the Corporation by
the Bank. Payment of dividends is restricted to the amount of the Bank’s 2016 net income plus its net retained earnings for
the previous two years. As of December 31, 2016, this amount was $15.9 million. However, the amount of dividends paid
by the Bank cannot reduce capital levels below levels that would cause the Bank to be less than adequately capitalized. The
payment of dividends by the Bank to the Corporation is the source on which the Corporation currently depends to pay
dividends to its shareholders.
As a bank incorporated under and subject to Pennsylvania banking laws and insured by the FDIC, the Bank must
obtain the prior approval of the Department of Banking and the Federal Reserve Board before establishing a new branch
banking office. Depending on the type of bank or financial institution, a merger of the Bank with another institution is
subject to the prior approval of one or more of the following: the Department of Banking, the FDIC, the Federal Reserve
Board and the Office of the Comptroller of the Currency and any other regulatory agencies having primary supervisory
authority over any other party to the merger. An approval of a merger by the appropriate bank regulatory agency would
depend upon several factors, including whether the merged institution is a federally insured state bank, a member of the
Federal Reserve System, or a national bank. Additionally, any new branch expansion or merger must comply with
branching restrictions provided by state law. The Pennsylvania Banking Code permits Pennsylvania banks to establish
branches anywhere in the state.
On October 24, 2012, Pennsylvania enacted three new laws known as the “Banking Law Modernization Package,” all
of which became effective on December 24, 2012. The intended goal of the new law, which applies to the Bank, is to
modernize Pennsylvania’s banking laws and to reduce regulatory burden at the state level where possible, given the
increased regulatory demands at the federal level as described below.
6
The new law also permits banks as well as the Department of Banking to disclose formal enforcement actions
initiated by the Department of Banking, clarifies that the Department of Banking has examination and enforcement
authority over subsidiaries as well as affiliates of regulated banks and bolsters the Department of Banking’s enforcement
authority over its regulated institutions by clarifying its ability to remove directors, officers and employees from institutions
for violations of laws or orders or for any unsafe or unsound practice or breach of fiduciary duty. Changes to existing law
also allow the Department of Banking to assess civil money penalties of up to $25,000 per violation.
The new law also sets a new standard of care for bank officers and directors, applying the same standard that exists
for non-banking corporations in Pennsylvania. The standard is one of performing duties in good faith, in a manner
reasonably believed to be in the best interests of the institutions and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar circumstances. Directors may rely in good faith on
information, opinions and reports provided by officers, employees, attorneys, accountants, or committees of the board, and
an officer may not be held liable simply because he or she served as an officer of the institution.
• Deposit Insurance Assessments
The deposits of the Bank are insured by the FDIC up to the limits set forth under applicable law and are subject to
deposit insurance premium assessments. The FDIC imposes a risk based deposit premium assessment system, under which
the amount of FDIC assessments paid by an individual insured depository institution, such as the Bank, is based on the
level of risk incurred in its activities.
In addition to deposit insurance assessments, banks are subject to assessments to pay the interest on Financing
Corporation bonds. The Financing Corporation was created by Congress to issue bonds to finance the resolution of failed
thrift institutions. The FDIC sets the Financing Corporation assessment rate every quarter. The Financing Corporation
assessment for the fourth quarter of 2016 was an annual rate of 0.56 basis points. Payments of the FICO assessment during
the twelve months ended December 31, 2016 totaled $154 thousand.
• Government Monetary Policies
The monetary and fiscal policies of the Federal Reserve Board and the other regulatory agencies have had, and will
probably continue to have, an important impact on the operating results of the Bank through their power to implement
national monetary policy in order to, among other things, curb inflation or combat a recession. The monetary policies of the
Federal Reserve Board may have a major effect upon the levels of the Bank’s loans, investments and deposits through the
Federal Reserve Board’s open market operations in United States government securities, through its regulation of, among
other things, the discount rate on borrowing of depository institutions, and the reserve requirements against depository
institution deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.
The earnings of the Bank and, therefore, of the Corporation are affected by domestic economic conditions,
particularly those conditions in the trade area as well as the monetary and fiscal policies of the United States government
and its agencies.
• Safety and Soundness
The Federal Reserve Board also has authority to prohibit a bank holding company from engaging in any activity or
transaction deemed by the Federal Reserve Board to be an unsafe or unsound practice. The payment of dividends could,
depending upon the financial condition of the Bank or Corporation, be such an unsafe or unsound practice and the
regulatory agencies have indicated their view that it generally would be an unsafe and unsound practice to pay dividends
except out of current operating earnings. The ability of the Bank to pay dividends in the future is presently and could be
further influenced, among other things, by applicable capital guidelines discussed below or by bank regulatory and
supervisory policies. The ability of the Bank to make funds available to the Corporation is also subject to restrictions
imposed by federal law. The amount of other payments by the Bank to the Corporation is subject to review by regulatory
authorities having appropriate authority over the Bank or Corporation and to certain legal limitations.
• Capital Adequacy
Federal and state banking laws impose on banks certain minimum requirements for capital adequacy. Federal
banking agencies have issued certain “risk-based capital” guidelines, and certain “leverage” requirements on member banks
such as the Bank. By policy statement, the Banking Department also imposes those requirements on the Bank. Banking
7
regulators have authority to require higher minimum capital ratios for an individual bank or bank holding company in view
of its circumstances.
Minimum Capital Ratios: The risk-based guidelines require all banks to maintain three “risk-weighted assets”
ratios. The first is a minimum ratio of total capital (“Tier 1” and “Tier 2” capital) to risk-weighted assets equal to 8.00%;
the second is a minimum ratio of “Tier 1” capital to risk-weighted assets equal to 6.00%; and the third is a minimum ratio
of “Common Equity Tier 1” capital to risk-weighted assets equal to 4.5%. Assets are assigned to five risk categories, with
higher levels of capital being required for the categories perceived as representing greater risk. In making the calculation,
certain intangible assets must be deducted from the capital base. The risk-based capital rules are designed to make
regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and
to minimize disincentives for holding liquid assets.
The risk-based capital rules also account for interest rate risk. Institutions with interest rate risk exposure above a
normal level would be required to hold extra capital in proportion to that risk. A bank’s exposure to declines in the
economic value of its capital due to changes in interest rates is a factor that the banking agencies will consider in evaluating
a bank’s capital adequacy. The rule does not codify an explicit minimum capital charge for interest rate risk. The
Corporation currently monitors and manages its assets and liabilities for interest rate risk, and believes its interest rate risk
practices are prudent and are in-line with industry standards. The Corporation is not aware of any new or proposed rules or
standards relating to interest rate risk that would materially adversely affect our operations.
The “leverage” ratio rules require banks which are rated the highest in the composite areas of capital, asset quality,
management, earnings, liquidity and sensitivity to market risk to maintain a ratio of “Tier 1” capital to “adjusted total
assets” (equal to the bank’s average total assets as stated in its most recent quarterly Call Report filed with its primary
federal banking regulator, minus end-of-quarter intangible assets that are deducted from Tier 1 capital) of not less than
4.00%.
For purposes of the capital requirements, “Tier 1” or “core” capital is defined to include common stockholders’
equity and certain noncumulative perpetual preferred stock and related surplus. “Tier 2” or “qualifying supplementary”
capital is defined to include a bank’s allowance for loan and lease losses up to 1.25% of risk-weighted assets, plus certain
types of preferred stock and related surplus, certain “hybrid capital instruments” and certain term subordinated debt
instruments. “Common Equity Tier 1” capital is defined as the sum of common stock instruments and related surplus net of
treasury stock, retained earnings, accumulated other comprehensive income, and qualifying minority interests.
In addition to the capital requirements discussed above, banks are required to maintain a “capital conservation buffer”
above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital.
The capital conservation buffer is being phased-in over four years beginning on January 1, 2016, as follows: the maximum
buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and
thereafter. This will result in the following minimum ratios beginning in 2019:
(i)
(ii)
(iii)
a common equity Tier 1 capital ratio of 7.0%;
a Tier 1 capital ratio of 8.5%; and
a total capital ratio of 10.5%.
Institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses
if their capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained
income that could be utilized for such actions.
The Bank’s and the Corporation’s regulators have the power to impose an additional buffer, the “countercyclical buffer,” of
up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive
credit growth. However, this buffer is only applicable to “advanced approach banks” ( i.e., banks with $250 billion or more
in total assets or $10 billion or more in total foreign exposures), which currently excludes the Corporation and the Bank.
The capital requirement rules, which were finalized in July 2013 implement revisions and clarifications consistent with
Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well
as certain instruments that no longer qualify as Tier 1 capital, some of which are being phased out over time. However,
small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which
includes the Corporation) will be able to permanently include non-qualifying instruments that were issued and included in
Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or
until the instruments mature.
8
In addition, smaller banking institutions (less than $250 billion in consolidated assets) were granted an opportunity to make
a one-time election to opt out of including most elements of accumulated other comprehensive income in regulatory capital.
Importantly, the opt-out excludes from regulatory capital not only unrealized gains and losses on available-for-sale debt
securities, but also accumulated net gains and losses on cash-flow hedges and amounts attributable to defined benefit
postretirement plans. The Corporation elected to opt-out, and indicated its election on the Call Report filed after January 1,
2015.
• Prompt Corrective Action
Federal banking law mandates certain “prompt corrective actions,” which Federal banking agencies are required to
take, and certain actions which they have discretion to take, based upon the capital category into which a Federally
regulated depository institution falls. Regulations have been adopted by the Federal bank regulatory agencies setting forth
detailed procedures and criteria for implementing prompt corrective action in the case of any institution that is not
adequately capitalized.
Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer,
insured depository institutions are required to meet the following capital level requirements in order to qualify as “well
capitalized:”
(i)
(ii)
(iii)
(iv)
a new common equity Tier 1 capital ratio of 6.5%;
a Tier 1 capital ratio of 8% (increased from 6%);
a total capital ratio of 10% (unchanged from current rules); and
a Tier 1 leverage ratio of 5% (increased from 4%).
An undercapitalized institution is required to file a written capital restoration plan, along with a performance guaranty by
its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic
restrictions including a prohibition on the payment of dividends, a limitation on asset growth and expansion, and in certain
cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of
certain “management fees” to any “controlling person”. Institutions that are classified as undercapitalized are also subject to
certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the
institution’s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise
additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on
deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or
sale of the institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized” and continues in
that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed
in receivership. The Bank is currently regarded as “well capitalized” for regulatory capital purposes. See Note 26 in the
Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding the
Bank’s and Corporation’s regulatory capital ratios.
• Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (“GLB Act”) repealed provisions of the Glass-Steagall Act, which prohibited
commercial banks and securities firms from affiliating with each other and engaging in each other’s businesses. Thus,
many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.
The GLB Act amended the Glass-Steagall Act to allow new “financial holding companies” (“FHC”) to offer banking,
insurance, securities and other financial products to consumers. Specifically, the GLB Act amends section 4 of the Act in
order to provide for a framework for the engagement in new financial activities. A bank holding company may elect to
become a financial holding company if all its subsidiary depository institutions are well-capitalized and well-managed. If
these requirements are met, a bank holding company may file a certification to that effect with the Federal Reserve Board
and declare that it elects to become a FHC. After the certification and declaration is filed, the FHC may engage either de
novo or through an acquisition in any activity that has been determined by the Federal Reserve Board to be financial in
nature or incidental to such financial activity. Bank holding companies may engage in financial activities without prior
notice to the Federal Reserve Board if those activities qualify under the new list in section 4(k) of the Act. However, notice
must be given to the Federal Reserve Board, within 30 days after the FHC has commenced one or more of the financial
activities. The Corporation has not elected to become an FHC at this time.
9
Under the GLB Act, a bank subject to various requirements is permitted to engage through “financial subsidiaries” in
certain financial activities permissible for affiliates of FHC’s. However, to be able to engage in such activities a bank must
continue to be “well-capitalized” and well-managed and receive at least a “satisfactory” rating in its most recent
Community Reinvestment Act examination.
• Community Reinvestment Act
The Community Reinvestment Act requires banks to help serve the credit needs of their communities, including
providing credit to low and moderate income individuals and areas. Should the Bank fail to serve adequately the
communities it serves, potential penalties may include regulatory denials to expand branches, relocate, add subsidiaries and
affiliates, expand into new financial activities and merge with or purchase other financial institutions.
• Privacy of Consumer Financial Information
The GLB Act also contains a provision designed to protect the privacy of each consumer’s financial information in a
financial institution. Pursuant to the requirements of the GLB Act, the Consumer Financial Protection Bureau has
promulgated final regulations intended to better protect the privacy of a consumer’s financial information maintained in
financial institutions. The regulations are designed to prevent financial institutions, such as the Bank, from disclosing a
consumer’s nonpublic personal information to third parties that are not affiliated with the financial institution.
However, financial institutions can share a customer’s personal information or information about business and
corporations with their affiliated companies. The regulations also provide that financial institutions can disclose nonpublic
personal information to nonaffiliated third parties for marketing purposes but the financial institution must provide a
description of its privacy policies to the consumers and give the consumers an opportunity to opt-out of such disclosure
and, thus, prevent disclosure by the financial institution of the consumer’s nonpublic personal information to nonaffiliated
third parties.
These privacy regulations will affect how consumer’s information is transmitted through diversified financial
companies and conveyed to outside vendors. The Bank does not believe the privacy regulations will have a material
adverse impact on its operations in the near term.
• Consumer Protection Rules – Sale of Insurance Products
In addition, as mandated by the GLB Act, the regulators have published consumer protection rules which apply to the
retail sales practices, solicitation, advertising or offers of insurance products, including annuities, by depository institutions
such as banks and their subsidiaries.
The rules provide that before the sale of insurance or annuity products can be completed, disclosures must be made
that state (i) such insurance products are not deposits or other obligations of or guaranteed by the FDIC or any other agency
of the United States, the Bank or its affiliates; and (ii) in the case of an insurance product that involves an investment risk,
including an annuity, that there is an investment risk involved with the product, including a possible loss of value.
The rules also provide that the Bank may not condition an extension of credit on the consumer’s purchase of an
insurance product or annuity from the Bank or its affiliates or on the consumer’s agreement not to obtain or a prohibition
on the consumer obtaining an insurance product or annuity from an unaffiliated entity.
The rules also require formal acknowledgement from the consumer that such disclosures have been received. In
addition, to the extent practical, the Bank must keep insurance and annuity sales activities physically separate from the
areas where retail banking transactions are routinely accepted from the general public.
• Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) addresses, among other matters, increased disclosures;
audit committees; certification of financial statements by the principal executive officer and the principal financial officer;
evaluation by management of our disclosure controls and procedures and our internal control over financial reporting;
auditor reports on our internal control over financial reporting; forfeiture of bonuses and profits made by directors and
senior officers in the twelve (12) month period covered by restated financial statements; a prohibition on insider trading
during Corporation stock blackout periods; disclosure of off-balance sheet transactions; a prohibition applicable to
companies, other than federally insured financial institutions, on personal loans to their directors and officers; expedited
10
filing of reports concerning stock transactions by a company’s directors and executive officers; the formation of a public
accounting oversight board; auditor independence; and increased criminal penalties for violation of certain securities laws.
• USA PATRIOT Act of 2001
The USA PATRIOT Act of 2001, which was enacted in the wake of the September 11, 2001 attacks, includes
provisions designed to combat international money laundering and advance the U.S. government’s war against terrorism.
The USA PATRIOT Act and the regulations which implement it contain many obligations which must be satisfied by
financial institutions, including the Bank. Those regulations impose obligations on financial institutions, such as the Bank,
to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist
financing and to verify the identity of their customers. The failure of a financial institution to maintain and implement
adequate programs to combat money laundering and terrorist financing could have serious legal and reputational
consequences for the financial institution.
• Government Policies and Future Legislation
As the enactment of the GLB Act and the Sarbanes-Oxley Act confirm, from time to time various laws are passed in
the United States Congress as well as the Pennsylvania legislature and by various bank regulatory authorities which would
alter the powers of, and place restrictions on, different types of banks and financial organizations. It is impossible to predict
whether any potential legislation or regulations will be adopted and the impact, if any, of such adoption on the business of
the Corporation or its subsidiaries, especially the Bank.
With the 2016 U.S. presidential election resulting in a new President and a new political party controlling the
Executive Branch of the Federal Government, the new administration may bring changes to the U.S. financial services
industry that we cannot now predict. Public comments by President Donald J. Trump may suggest his intent to change
policies and regulations that implement current federal law, including those implementing the Dodd-Frank Act. At this
point we are unable to determine what impact the Trump Administration’s policy changes might have on the Corporation or
the Bank.
• Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
The Dodd-Frank Act was passed by Congress on July 15, 2010, and was signed into law by President Obama on July
21, 2010. It is intended to promote financial stability in the U.S., reduce the risk of bailouts and protect against abusive
financial services practices by improving accountability and transparency in the financial system and ending the concept of
“too big to fail” institutions by giving regulators the ability to liquidate large financial institutions. It is the broadest
overhaul of the U.S. financial system since the Great Depression and the overall impact on the Corporation and its
subsidiaries is a general increase in costs related to compliance with the Dodd-Frank Act.
The Dodd-Frank Act has significantly changed the current bank regulatory structure and will affect into the
immediate future the lending and investment activities and general operations of depository institutions and their holding
companies.
As discussed earlier, the Dodd-Frank Act requires the Federal Reserve Board to establish minimum consolidated
capital requirements for bank holding companies that are as stringent as those required for insured depository institutions;
the components of Tier 1 capital are restricted to capital instruments that are considered to be Tier 1 capital for insured
depository institutions. In addition, the proceeds of trust preferred securities are excluded from Tier 1 capital unless (i) such
securities are issued by bank holding companies with assets of less than $500 million or (ii) such securities were issued
prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.
The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with extensive powers to implement
and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a
wide range of consumer protection laws that apply to all banks, among other things, including the authority to prohibit
“unfair, deceptive or abusive” acts and practices. However, institutions of less than $10 billion in assets, such as the Bank,
will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be
subject to the enforcement authority of, their prudential regulators.
The Dodd-Frank Act made many other changes in banking regulation. These include allowing depository
institutions, for the first time, to pay interest on business checking accounts, requiring originators of securitized loans to
11
retain a percentage of the risk for transferred loans, establishing regulatory rate-setting for certain debit card interchange
fees and establishing a number of reforms for mortgage originations. Effective October 1, 2011, the debit-card interchange
fee was capped at $0.21 per transaction, plus an additional 5 basis point charge to cover fraud losses. These fees are much
lower than the current market rates. The regulation only impacts banks with assets above $10.0 billion.
The Dodd-Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to
promulgate rules revising its assessment system so that it is based on the average consolidated total assets less tangible
equity capital of an insured institution instead of deposits. That rule took effect April 1, 2011. The Dodd-Frank Act also
permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to
$250,000 per depositor, retroactive to January 1, 2008.
Although many of the provisions of the Dodd-Frank Act are currently effective, there remain some regulations yet to
be implemented. It is therefore difficult to predict at this time what impact the Dodd-Frank Act and implementing
regulations will have on the Corporation and the Bank. The changes resulting from the Dodd-Frank Act could limit our
business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and
leverage requirements or otherwise materially and adversely affect us. These changes may also require us to invest
significant management attention and resources to evaluate and make any changes necessary to comply with new statutory
and regulatory requirements. Failure to comply with the new requirements could also materially and adversely affect us.
ITEM 1A. RISK FACTORS
Investment in the Corporation’s Common Stock involves risk. The market price of the Corporation’s Common Stock
may fluctuate significantly in response to a number of factors including those that follow. The following list contains
certain risks that may be unique to the Corporation and to the banking industry. The following list of risks should not be
viewed as an all-inclusive list or in any particular order.
The Corporation’s performance and financial condition may be adversely affected by regional economic conditions and
real estate values
The Bank’s loan and deposit activities are largely based in eastern Pennsylvania. As a result, the Corporation’s
consolidated financial performance depends largely upon economic conditions in this eastern Pennsylvania region. This
region experienced deteriorating local economic conditions during 2008 through 2011, and a resumption of this
deterioration in the regional real estate market could harm our financial condition and results of operations because of the
geographic concentration of loans within this regional area and because a large percentage of our loans are secured by real
property. If there is further decline in real estate values, the collateral for the Corporation’s loans will provide less security.
As a result, the Corporation’s ability to recover on defaulted loans by selling the underlying real estate will be diminished,
and the Bank will be more likely to suffer losses on defaulted loans.
Additionally, a significant portion of the Corporation’s loan portfolio is invested in commercial real estate loans.
Often in a commercial real estate transaction, repayment of the loan is dependent on rental income. Economic conditions
may affect the tenant’s ability to make rental payments on a timely basis, and may cause some tenants not to renew their
leases, each of which may impact the debtor’s ability to make loan payments. Further, if expenses associated with
commercial properties increase dramatically, the tenant’s ability to repay, and therefore the debtor’s ability to make timely
loan payments, could be adversely affected.
All of these factors could increase the amount of the Corporation’s non-performing loans, increase its provision for
loan and lease losses and reduce the Corporation’s net income.
Rapidly changing interest rate environment could reduce the Corporation’s net interest margin, net interest income, fee
income and net income
Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a significant part of the
Corporation’s net income. Interest rates are key drivers of the Corporation’s net interest margin and subject to many factors
beyond the control of the Corporation. As interest rates change, net interest income is affected. Rapidly increasing interest
rates in the future could result in interest expense increasing faster than interest income because of divergence in financial
instrument maturities and/or competitive pressures. Further, substantially higher interest rates generally reduce loan
demand and may result in slower loan growth. Decreases or increases in interest rates could have a negative effect on the
spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net
12
interest income. Also, changes in interest rates might also impact the values of equity and debt securities under
management and administration by the Wealth Management Division which may have a negative impact on fee income.
See the section captioned “Net Interest Income” in the MD&A section of this Annual Report on Form 10-K for additional
details regarding interest rate risk.
Economic troubles may negatively affect our leasing business
The Corporation’s leasing business which began operations in September 2006, consists of nation-wide leasing
various types of equipment to businesses with an average original equipment cost of approximately $24 thousand per lease.
Continued economic sluggishness may result in higher credit losses than we would experience in our traditional lending
business, as well as potential increases in state regulatory burdens such as state income taxes, personal property taxes and
sales and use taxes.
A general economic slowdown could impact Wealth Management Division revenues
A general economic slowdown could decrease the value of Wealth Management Division assets under management
and administration resulting in lower fee income, and clients potentially seeking alternative investment opportunities with
other providers, which could result in lower fee income to the Corporation.
If we fail to comply with legal standards, we could incur liability to our clients or lose clients, which could negatively affect
our earnings.
Managing or servicing assets with reasonable prudence in accordance with the terms of governing documents and
applicable laws is important to client satisfaction, which in turn is important to the earnings and growth of our investment
businesses. Failure to comply with these standards, adequately manage these risks or manage the differing interests often
involved in the exercise of fiduciary responsibilities could also result in liability.
Provision for loan and lease losses and level of non-performing loans may need to be modified in connection with internal
or external changes
All borrowers carry the potential to default and our remedies to recover may not fully satisfy money previously
loaned. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses
charged to expense, which represents the Corporation’s best estimate of probable credit losses that have been incurred
within the existing portfolio of loans. The allowance, in the judgment of the Corporation, is necessary to reserve for
estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan losses reflects the
Corporation’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan
portfolio quality; present economic conditions; and unidentified losses inherent in the current loan portfolio. The
determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and
requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of
which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding
existing loans, identification of additional problem loans and other factors, both within and outside of our control, may
require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance
for loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs,
based on judgments different than those of the Corporation. An increase in the allowance for loan losses results in a
decrease in net income, and possibly risk-based capital, and may have a material adverse effect on our financial condition
and results of operations.
The design of the allowance for loan loss methodology is a dynamic process that must be responsive to changes in
environmental factors. Accordingly, at times the allowance methodology may be modified in order to incorporate changes
in various factors including, but not limited to, levels and trends of delinquencies and charge-offs, trends in volume and
types of loans, national and economic trends and industry conditions.
Potential acquisitions may disrupt the Corporation’s business and dilute shareholder value
We regularly evaluate opportunities to strengthen our current market position by acquiring and investing in banks and
in other complementary businesses, or opening new branches. As a result, we may engage in negotiations or discussions
that, if they were to result in a transaction, could have a material effect on our operating results and financial condition,
including short and long-term liquidity. Our acquisition activities could be material to us. For example, we could issue
additional shares of common stock in a purchase transaction, which could dilute current shareholders’ ownership interest.
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These activities could require us to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if
goodwill recorded in connection with our prior or potential future acquisitions were determined to be impaired, then we
would be required to recognize a charge against our earnings, which could materially and adversely affect our results of
operations during the period in which the impairment was recognized. Any potential charges for impairment related to
goodwill would not directly impact cash flow or tangible capital.
Our acquisition activities could involve a number of additional risks, including the risks of:
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incurring time and expense associated with identifying and evaluating potential acquisitions and
negotiating potential transactions, resulting in the Corporation’s attention being diverted from the
operation of our existing business;
using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks
with respect to the target institution or assets;
• potential exposure to unknown or contingent liabilities of banks and businesses we acquire;
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the time and expense required to integrate the operations and personnel of the combined businesses;
experiencing higher operating expenses relative to operating income from the new operations;
creating an adverse short-term effect on our results of operations;
losing key employees and customers as a result of an acquisition that is poorly received;
risk of significant problems relating to the conversion of the financial and customer data of the entity
being acquired into the Corporation’s financial and customer product systems; and,
• potential impairment of intangible assets created in business acquisitions.
There is no assurance that we will be successful in overcoming these risks or any other problems encountered in
connection with pending or potential acquisitions. Our inability to overcome these risks could have an adverse effect on our
levels of reported net income, ROE and ROA, and our ability to achieve our business strategy and maintain our market
value.
Decreased residential mortgage origination, volume and pricing decisions of competitors could affect our net income.
The Corporation originates, sells and services residential mortgage loans. Changes in interest rates and pricing
decisions by our loan competitors affect demand for the Corporation’s residential mortgage loan products, the revenue
realized on the sale of loans and revenues received from servicing such loans for others, ultimately reducing the
Corporation’s net income. New regulations, increased regulatory reviews, and/or changes in the structure of the secondary
mortgage markets which the Corporation utilizes to sell mortgage loans may be introduced and may increase costs and
make it more difficult to operate a residential mortgage origination business.
Our mortgage servicing rights could become impaired, which may require us to take non-cash charges.
Because we retain the servicing rights on many loans we sell in the secondary market, we are required to record a
mortgage servicing right asset, which we test quarterly for impairment. The value of mortgage servicing rights is heavily
dependent on market interest rates and tends to increase with rising interest rates and decrease with falling interest rates. If
we are required to record an impairment charge, it would adversely affect our business, financial condition and results of
operations.
Declines in asset values may result in impairment charges and may adversely affect the value of the Company’s results of
operations, financial condition and cash flows.
A majority of the Corporation’s investment portfolio is comprised of securities which are collateralized by
residential mortgages. These residential mortgage-backed securities include securities of U.S. government agencies, U.S.
government-sponsored entities, and private-label collateralized mortgage obligations. The Corporation’s securities portfolio
also includes obligations of U.S. government-sponsored entities, obligations of states and political subdivisions thereof, and
equity securities. The fair value of investments may be affected by factors other than the underlying performance of the
issuer or composition of the obligations themselves, such as rating downgrades, adverse changes in the business climate
and a lack of liquidity for resale of certain investment securities. Quarterly, the Corporation evaluates investments and
other assets for impairment indicators in accordance with U.S. GAAP. A decline in the fair value of the securities in our
investment portfolio could result in an other-than temporary impairment (“OTTI”) write-down that would reduce our
earnings. Further, given the significant judgments involved, if we are incorrect in our assessment of OTTI, this error could
have a material adverse effect on our results of operation, financial condition, and cash flows. If the Corporation incurs
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OTTI charges that result in its falling below the “well capitalized” regulatory requirement, it may need to raise additional
capital.
Accounting standards periodically change and the application of our accounting policies and methods may require the
Corporation to make estimates about matters that are uncertain
The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting
Standards Board and the SEC, periodically revise or issue new financial accounting and reporting standards that govern the
preparation of our consolidated financial statements. The effect of such revised or new standards on our financial
statements can be difficult to predict and can materially impact how we record and report our financial condition and
results of operations.
In addition, the Corporation must exercise judgment in appropriately applying many of our accounting policies and
methods so they comply with generally accepted accounting principles. In some cases, the Corporation may have to select a
particular accounting policy or method from two or more alternatives. In some cases, the accounting policy or method
chosen might be reasonable under the circumstances and yet might result in our reporting materially different amounts than
would have been reported if we had selected a different policy or method. Accounting policies are critical to fairly
presenting our financial condition and results of operations and may require the Corporation to make difficult, subjective or
complex judgments about matters that are uncertain.
The FASB’s recently adopted ASU 2016-13 will result in a significant change in how we recognize credit losses and may
have a material impact on our financial condition or results of operations.
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,
2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,”
which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as
the Current Expected Credit Loss model, or CECL. Under the CECL model, we will be required to present certain financial
assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount
expected to be collected. The measurement of expected credit losses is to be based on information about past events,
including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of
the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and
periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which
delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL
model will materially affect how we determine our allowance for loan losses and could require us to significantly increase
our allowance. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we
are required to materially increase our level of allowance for loan and lease losses for any reason, such increase could
adversely affect our business, financial condition and results of operations.
The new CECL standard will become effective for the Corporation for fiscal years beginning after December 15,
2019 and for interim periods within those fiscal years. We are currently evaluating the impact the CECL model will have
on our accounting, but we expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as
of the beginning of the first reporting period in which the new standard is effective. We cannot yet determine the magnitude
of any such one-time cumulative adjustment or of the overall impact of the new standard on our financial condition or
results of operations.
A return to recessionary conditions or a large and unexpected rise in interest rates could result in increases in our level of
non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher
loan losses and lower earnings.
Falling home prices and sharply reduced sales volumes, along with the collapse of the United States’ subprime
mortgage industry in 2008 that followed a national home price peak in mid-2006, significantly contributed to a recession
that officially lasted until June 2009, although the effects continued thereafter. Dramatic declines in real estate values and
high levels of foreclosures resulted in significant asset write-downs by financial institutions, which caused many financial
institutions to seek additional capital, to merge with other institutions and, in some cases, to fail. A return of recessionary
conditions and/or negative developments in the domestic and international credit markets may significantly affect the
markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and
profitability. Declines in real estate values and sales volumes and a return to higher unemployment levels may result in
higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in
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demand for our products and services. A large or unexpected rise in interest rates could materially impact consumer and
business ability to repay, thus increasing our level of non performing loans and reducing demand for loans. These negative
events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.
Increases in FDIC insurance premiums may adversely affect the Corporation’s earnings
In response to the impact of economic conditions since 2008 on banks generally and on the FDIC Deposit Insurance
Fund (the “DIF”), the FDIC changed its risk-based assessment system and increased base assessment rates. On November
12, 2009, the FDIC adopted a rule requiring banks to prepay three years’ worth of premiums to replenish the depleted
insurance fund. In February 2011, as required under the Dodd-Frank Act, the FDIC issued a ruling pursuant to which the
assessment base against which FDIC assessments for deposit insurance are made will change. Instead of FDIC insurance
assessments being based upon an insured bank’s deposits, FDIC insurance assessments are now generally based on an
insured bank’s total average assets minus average tangible equity. With this change, the Corporation expects that its overall
FDIC insurance cost will decline. However, a change in the risk categories applicable to the Corporation’s bank
subsidiaries, further adjustments to base assessment rates and any special assessments could have a material adverse effect
on the Corporation.
The Dodd-Frank Act also requires that the FDIC take steps necessary to increase the level of the DIF to 1.35% of
total insured deposits by September 30, 2020. In October 2010, the FDIC adopted a Restoration Plan to achieve that goal.
Certain elements of the Restoration Plan are left to future FDIC rulemaking, as are the potential for increases to the
assessment rates, which may become necessary to achieve the targeted level of the DIF. Future FDIC rulemaking in this
regard may have a material adverse effect on the Corporation.
The stability of other financial institutions could have detrimental effects on our routine funding transactions
Routine funding transactions may be adversely affected by the actions and soundness of other financial institutions.
Financial service institutions are interrelated as a result of trading, clearing, lending, borrowing or other relationships.
Transactions are executed on a daily basis with different industries and counterparties, and routinely executed with
counterparties in the financial services industry. As a result, a rumor, default or failures within the financial services
industry could lead to market-wide liquidity problems which in turn could materially impact the financial condition of the
Corporation.
The Corporation may need to raise additional capital in the future and such capital may not be available when needed or
at all
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our
operations and may need to raise additional capital in the future, whether in the form of debt or equity, to provide us with
sufficient capital resources to meet our regulatory and business needs. We cannot assure you that such capital will be
available to us on acceptable terms or at all. Our ability to raise additional capital will depend on, among other things,
conditions in the capital markets at the time, which are outside of our control, and our financial condition. If the
Corporation is unable to generate sufficient additional capital though its earnings, or other sources, including sales of
assets, it would be necessary to slow earning asset growth and or pass up possible acquisition opportunities, which may
result in a reduction of future net income growth. Further, an inability to raise additional capital on acceptable terms when
needed could have a material adverse effect on our business, financial condition and results of operations.
If sufficient wholesale funding to support earning-asset growth is unavailable, the Corporation’s net income may decrease
The Corporation recognizes the need to grow both wholesale and non-wholesale funding sources to support earning
asset growth and to provide appropriate liquidity. The Corporation’s asset growth over the past few years has been funded
with various forms of wholesale funding which is defined as wholesale deposits (primarily certificates of deposit) and
borrowed funds (FHLB advances, Federal advances and Federal fund line borrowings). Wholesale funding at December 31,
2016 represented approximately 18.0% of total funding compared to 17.9% at December 31, 2015 and 21.5% at
December 31, 2014. Wholesale funding is subject to certain practical limits such as the FHLB’s Maximum Borrowing
Capacity and the Corporation’s liquidity targets. Additionally, regulators might consider wholesale funding beyond certain
points to be imprudent and might suggest that future asset growth be reduced or halted.
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In the absence of wholesale funding sources, the Corporation might need to reduce earning asset growth through the
reduction of current production, sale of assets, and/or the participating out of future and current loans or leases. This in turn
might reduce future net income of the Corporation.
The amount loaned to us is generally dependent on the value of the collateral pledged and the Corporation’s financial
condition. These lenders could reduce the percentages loaned against various collateral categories, eliminate certain types
of collateral and otherwise modify or even terminate their loan programs, particularly to the extent they are required to do
so because of capital adequacy or other balance sheet concerns, or if disruptions in the capital markets occur. Any change
or termination of our borrowings from the FHLB, the Federal Reserve or correspondent banks may have an adverse effect
on our liquidity and profitability.
The capital and credit markets are volatile and could cause the price of our stock to fluctuate
The capital and credit markets periodically experience volatility. In some cases, the markets may produce downward
pressure on stock prices and credit availability for certain issuers seemingly without regard to those issuers’ underlying
financial strength. Market volatility may result in a material adverse effect on our business, financial condition and results
of operations and/or our ability to access capital. Several factors could cause the market price for our common stock to
fluctuate substantially in the future, including without limitation:
•
announcements of developments related to our business, any of our competitors or the financial services
industry in general;
•
fluctuations in our results of operations;
•
sales of substantial amounts of our securities into the marketplace;
• general conditions in our markets or the worldwide economy;
•
a shortfall in revenues or earnings compared to securities analysts’ expectations;
•
changes in analysts’ recommendations or projections;
• our announcement of new acquisitions or other projects; and
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compliance with regulatory changes.
Any failure of the Corporation and the Bank to comply with federal and state regulatory requirements could adversely
affect our business.
The Corporation and the Bank are supervised by the Federal Reserve Bank, the Pennsylvania Department of Banking and
Securities and the State of Delaware. Accordingly, the Corporation, the Bank and our subsidiaries are subject to extensive
federal and state legislation, regulation and supervision that govern almost all aspects of our business operations, which are
primarily designed to protect consumers, depositors and the government's deposit insurance funds, and to accomplish other
governmental policy objectives such as combating terrorism. That regulatory framework is not designed to protect
shareholders. We are required to comply with a variety of laws and regulations, including the Bank Secrecy Act, the USA
PATRIOT Act, the Gramm Leach Bliley Act, the Equal Credit Opportunity Act, real estate-secured consumer lending
regulations (such as Truth-in-Lending), Real Estate Settlement Procedures Act regulations, and licensing and registration
requirements for mortgage originators. Recent and potential future changes in laws and regulations, escalating regulatory
expectations and heightened regulatory attention to mortgage and foreclosure-related activities and exposures and other
business practices require that we devote substantial management attention and resources to regulatory compliance. While
the Corporation has policies and procedures designed to ensure compliance with regulatory requirements, there is risk that
the Corporation and the Bank may be determined not to have complied with applicable requirements. Any failure by the
Corporation or the Bank to comply with these requirements, even if such failure was unintentional or inadvertent, could
result in adverse action to be taken by regulators, including through formal or informal supervisory enforcement actions,
and could result in the assessment of fines and penalties. In some circumstances, additional negative consequences also
may result from regulatory action, including restrictions on the Corporation’s business activities, acquisitions and other
growth initiatives. The occurrence of one or more of these events may have a material adverse effect on our business and
reputation.
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Previously enacted and potential future legislation, including legislation to reform the U.S. financial regulatory system,
could adversely affect our business
Market conditions have resulted in the creation of various programs by the United States Congress, the Treasury, the
Federal Reserve and the FDIC that were designed to enhance market liquidity and bank capital. As these programs expire,
are withdrawn or reduced, the impact on the financial markets, banks in general and their customers is unknown. This could
have the effect of, among other things, reducing liquidity, raising interest rates, reducing fee revenue, limiting the ability to
raise capital, all of which could have an adverse impact on the financial condition of the Bank and the Corporation.
Additionally, the federal government has passed a variety of other reforms related to banking and the financial
industry including, without limitation, the Dodd-Frank Act. The Dodd-Frank Act imposes significant regulatory and
compliance changes. Effects of the Dodd-Frank Act on our business include:
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changes to regulatory capital requirements;
exclusion of hybrid securities, including trust preferred securities, issued on or after May 19, 2010 from
tier 1 capital;
creation of new government regulatory agencies (such as the Financial Stability Oversight Council, which
will oversee systemic risk, and the Consumer Financial Protection Bureau, which will develop and
enforce rules for bank and non-bank providers of consumer financial products);
potential limitations on federal preemption;
changes to deposit insurance assessments;
regulation of debit interchange fees we earn;
changes in retail banking regulations, including potential limitations on certain fees we may charge; and
changes in regulation of consumer mortgage loan origination and risk retention.
In addition, the Dodd-Frank Act restricts the ability of banks to engage in certain proprietary trading or to sponsor or
invest in private equity or hedge funds, commonly referred to as the Volker Rule. The Dodd-Frank Act also contains
provisions designed to limit the ability of insured depository institutions, their holding companies and their affiliates to
conduct certain swaps and derivatives activities and to take certain principal positions in financial instruments.
Some provisions of the Dodd-Frank Act became effective immediately upon its enactment. Many provisions,
however, will require regulations to be promulgated by various federal agencies in order to be implemented, some of which
have been proposed by the applicable federal agencies. The provisions of the Dodd-Frank Act may have unintended effects,
which will not be clear until implementation. The changes resulting from the Dodd-Frank Act could limit our business
activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage
requirements or otherwise materially and adversely affect us. These changes may also require us to invest significant
management attention and resources to evaluate and make any changes necessary to comply with new statutory and
regulatory requirements. Failure to comply with the new requirements could also materially and adversely affect us.
The Consumer Financial Protection Bureau (“CFPB”) may reshape the consumer financial laws through rulemaking and
enforcement of unfair, deceptive or abusive practices, which may directly impact the business operations of depository
institutions offering consumer financial products or services including the Bank.
The CFPB has broad rulemaking authority to administer and carry out the purposes and objectives of the “Federal
consumer financial laws, and to prevent evasions thereof,” with respect to all financial institutions that offer financial
products and services to consumers. The CFPB is also authorized to prescribe rules applicable to any covered person or
service provider identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any
transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or
service (“UDAP authority”). The potential reach of the CFPB’s broad rulemaking powers and UDAP authority on the
operations of financial institutions offering consumer financial products or services including the Bank is currently
unknown.
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Governmental discretionary policies may impact the operations and earnings of the Corporation and its Subsidiaries
The operations of the Corporation and its subsidiaries are affected not only by general economic conditions, but also
by the policies of various regulatory authorities. In particular, the Federal Reserve Board regulates monetary policy and
interest rates in order to influence general economic conditions. These policies have a significant influence on overall
growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for deposits.
Federal Reserve Board monetary policies have had a significant effect on the operating results of all financial institutions in
the past and may continue to do so in the future.
With the 2016 U.S. presidential election resulting in a new President and a new political party controlling the
Executive Branch of the Federal Government, the new administration may bring changes to the U.S. financial services
industry that we cannot now predict. Public comments by President Donald J. Trump may suggest his intent to change
policies and regulations that implement current federal law, including those implementing the Dodd-Frank Act. At this
point we are unable to determine what impact the Trump Administration’s policy changes might have on the Corporation or
its subsidiaries.
Potential losses incurred in connection with possible repurchases and indemnification payments related to mortgages that
we have sold into the secondary market may require us to increase our financial statement reserves in the future.
We engage in the origination and sale of residential mortgages into the secondary market. In connection with such
sales, we make certain representations and warranties, which, if breached, may require us to repurchase such loans or
indemnify the purchasers of such loans for actual losses incurred in respect of such loans. These representations and
warranties vary based on the nature of the transaction and the purchaser’s or insurer’s requirements but generally pertain to
the ownership of the mortgage loan, the real property securing the loan and compliance with applicable laws and applicable
lender and government-sponsored entity underwriting guidelines in connection with the origination of the loan. While we
believe our mortgage lending practices and standards to be adequate, we have settled a small number of claims we consider
to be immaterial; however we may receive requests in the future, which could be material in volume. If that were to
happen, we could incur losses in connection with loan repurchases and indemnification claims, and any such losses might
exceed our financial statement reserves, requiring us to increase such reserves. In that event, any losses we might have to
recognize and any increases we might have to make to our reserves could have a material adverse effect on our business,
financial position, liquidity, results of operations or cash flows.
Our ability to realize our deferred tax asset may be reduced, which may adversely impact results of operations
Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it
requires the prediction of future occurrences. The deferred tax asset may be reduced in the future if estimates of future
income or our tax planning strategies do not support the amount of the deferred tax asset. If it is determined that a valuation
allowance of its deferred tax asset is necessary, the Corporation may incur a charge to earnings. The value of our deferred
tax asset is directly related to effective income tax rates in effect at the time of uses. With the recent changes in Congress
and the White House, there is a likelihood that corporate income tax rates will be reduced. This would cause a write-down
of our deferred tax asset resulting in a charge to earnings.
Environmental risk associated with our lending activities could affect our results of operations and financial condition
A significant portion of our loan portfolio is secured by real property. In the course of our business, we may own or
foreclose and take title to real estate and could become subject to environmental liabilities with respect to these properties.
We may become responsible to a governmental agency or third parties for property damage, personal injury, investigation
and clean-up costs incurred by those parties in connection with environmental contamination, or may be required to
investigate or clean-up hazardous or toxic substances, or chemical releases at a property. The costs associated with
environmental investigation or remediation activities could be substantial. If we were to become subject to significant
environmental liabilities, it could have a material adverse effect on our results of operations and financial condition.
Technological systems failures, interruptions and security breaches could negatively impact our operations and reputation
Communications and information systems are essential to the conduct of our business, as we use such systems to
manage our customer relationships, our general ledger, our deposits, and our loans. While we have established policies and
procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there can be no assurance
that such events will not occur or that they will be adequately addressed if they do. In addition, any compromise of our
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security systems could deter customers from using our web site and our online banking service, which involve the
transmission of confidential information. Although we rely on commonly used security and processing systems to provide
the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our
systems from compromises or breaches of security.
In addition, we outsource certain of our data processing to third-party providers. If our third-party providers
encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account
for customer transactions could be affected, and our business operations could be adversely impacted. Threats to
information security also exist in the processing of customer information through various other vendors and their personnel.
The occurrence of any systems failure, interruption, or breach of security could damage our reputation and result in a
loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to civil litigation and
possible financial liability. Any of these occurrences could have a material adverse effect on our financial condition and
results of operations.
Failure to meet customer expectations for technology-driven products and services could reduce demand for bank and
wealth services
Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our
customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological
advances and to invest in new technology as it becomes available. Many of our competitors have greater resources to invest
in technology than we do and may be better equipped to market new technology-driven products and services. The ability
to keep pace with technological change is important, and the failure to do so on our part could significantly reduce the
number of new wealth and bank customers resulting in a material adverse impact on our business and therefore on our
financial condition and results of operations.
The Corporation is subject to certain operational risks, including, but not limited to, customer or employee fraud and data
processing system failures and errors
Employee errors and misconduct could subject us to financial losses or regulatory sanctions and seriously harm our
reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized
activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent
employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all
cases. Employee errors could also subject us to financial claims for negligence.
We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data
processing system failures and errors and customer or employee fraud. The Corporation diligently reviews and updates its
internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and
procedures. Should our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or
exceeds applicable insurance limits, it could have a material adverse effect on our business, results of operations and
financial condition.
Attractive acquisition opportunities may not be available to us in the future which could limit the growth of our business
We may not be able to sustain a positive rate of growth or be able to expand our business. We expect that other
banking and financial service companies, many of which have significantly greater resources than us, will compete with us
in acquiring other financial institutions if we pursue such acquisitions. This competition could increase prices for potential
acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to
receive the appropriate regulatory approvals for a transaction, we will not be able to consummate such transaction which
we believe to be in our best interests. Among other things, our regulators consider our capital, liquidity, profitability,
regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Other
factors, such as economic conditions and legislative considerations, may also impede or prohibit our ability to expand our
market presence. If we are not able to successfully grow our business, our financial condition and results of operations
could be adversely affected.
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The financial services industry is very competitive, especially in the Corporation’s market area, and such competition
could affect our operating results
The Corporation faces competition in attracting and retaining deposits, making loans, and providing other financial
services such as trust and investment management services throughout the Corporation’s market area. The Corporation’s
competitors include other community banks, larger banking institutions, trust companies and a wide range of other financial
institutions such as credit unions, registered investment advisors, financial planning firms, leasing companies, government-
sponsored enterprises, on-line banking enterprises, mutual fund companies, insurance companies and other non-bank
businesses. Many of these competitors have substantially greater resources than the Corporation. This is especially evident
in regards to advertising and public relations spending. For a more complete discussion of our competitive environment,
see “Business—Competition” in Item 1 above. If the Corporation is unable to compete effectively, the Corporation may
lose market share and income from deposits, loans, and other products may be reduced.
Additionally, increased competition among financial services companies due to consolidation of certain competing
financial institutions and the conversion of certain investment banks to bank holding companies may adversely affect our
ability to market our products and services.
The Corporation’s common stock is subordinate to all of our existing and future indebtedness; regulatory and contractual
restrictions may limit or prevent us from paying dividends on our common stock; and we are not limited on the amount of
indebtedness we and our subsidiaries may incur in the future
Our common stock ranks junior to all indebtedness, including our outstanding subordinated debentures, and other
non-equity claims on the Corporation with respect to assets available to satisfy claims on the Corporation, including in a
liquidation of the Corporation. Additionally, unlike indebtedness, where principal and interest would customarily be
payable on specified due dates, in the case of our common stock, dividends are payable only when, as and if authorized and
declared by our Board of Directors and depend on, among other things, our results of operations, financial condition, debt
service requirements, other cash needs and any other factors our Board of Directors deems relevant. Under Pennsylvania
law we are subject to restrictions on payments of dividends out of lawfully available funds. Also, the Corporation’s right to
participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the
subsidiary’s creditors.
In addition, we are not limited by our common stock in the amount of debt or other obligations we or our
subsidiaries may incur in the future. Accordingly, we and our subsidiaries may incur substantial amounts of additional debt
and other obligations that will rank senior to our common stock or to which our common stock will be structurally
subordinated.
There may be future sales of additional common stock or other dilution of our equity, which may adversely affect the
market price of our common stock
We are not restricted from issuing additional common stock or other securities. Additionally, our shareholders may
in the future approve the authorization of additional classes or series of stock which may have distribution or other rights
senior to the rights of our common stock, or may be convertible into or exchangeable for, or may represent the right to
receive, common stock or substantially similar securities. The future issuance of shares of our common stock or any other
such future equity classes or series could have a dilutive effect on the holders of our common stock. Additionally, the
market value of our common stock could decline as a result of sales by us of a large number of shares of common stock or
any future class or series of stock in the market or the perception that such sales could occur.
Downgrades in U.S. government and federal agency securities could adversely affect the Corporation
In addition to causing economic and financial market disruptions, any downgrades in U.S. government and federal
agency securities, or failures to raise the U.S. debt limit if necessary in the future, could, among other things, materially
adversely affect the market value of the U.S. and other government and governmental agency securities that we hold, the
availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms, as
well as have other material adverse effects on the operation of our business and our financial results and condition. In
particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed
income markets, adversely affecting the cost and availability of funding, which could negatively affect profitability. Also,
the adverse consequences as a result of the downgrade could extend to the borrowers of the loans the bank makes and, as a
result, could adversely affect its borrowers’ ability to repay their loans.
21
The Corporation is dependent on key personnel and the loss of one or more of those key personnel may materially and
adversely affect the Corporation’s operations and prospects.
The Corporation currently depends on the services of a number of key management personnel. The loss of key
personnel could materially and adversely affect the results of operations and financial condition. The Corporation’s success
also depends in part on the ability to attract and retain additional qualified management personnel. Competition for such
personnel is strong and the Corporation may not be successful in attracting or retaining the personnel it requires.
Additional risk factors also include the following all of which may reduce revenues and/or increase expenses and/or pull
the Corporation’s attention away from core banking operations which may ultimately reduce the Corporation’s net
income:
• Changes in securities analysts’ estimates of financial performance;
• Volatility of stock market prices and volumes;
• Rumors or erroneous information;
• Changes in market values of similar companies;
• New developments in the banking industry;
• Variations in quarterly or annual operating results;
• New litigation or changes in existing litigation;
• Regulatory actions;
• Restructuring of government-sponsored enterprises such as Fannie Mae and Freddie Mac;
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
22
ITEM 2.
PROPERTIES
As of December 31, 2016, the Corporation owns or leases 25 full-service branch locations, eight limited-hour
retirement community branches, one limited-service branch location, five wealth management offices, one insurance
agency and six other office properties which serve as administrative offices.
The following table details the Corporation’s properties and deposits as of December 31, 2016:
Property Address
Full Service Branches (Banking Segment):
Owned/Leased
Total Deposits as of
December 31, 2016
(dollars in thousands)
801 Lancaster Ave., Bryn Mawr, PA 19010*
Owned
$
50 W. Lancaster Ave., Ardmore, PA 19003
5000 Pennell Rd., Aston, PA 19014
135 E. City Avenue, Bala Cynwyd, PA 19004
599 Skippack Pk., Blue Bell, PA 19422
3218 Edgemont Ave., Brookhaven, PA 19015
US Rts. 1 and 100, Chadds Ford, PA 19317
23 E. Fifth St., Chester, PA 19013
31 Baltimore Pk., Chester Heights, PA 19017
528 Fayette St., Conshohocken, PA 19428
113 W. Germantown Pk., East Norriton, PA 19401
237 N. Pottstown Pk., Exton, PA 19341
18 W. Eagle Rd., Havertown, PA 19083
106 E. Street Rd., Kennett Square, PA 19348
197 E. DeKalb Pk., King of Prussia, PA 19406
33 W. Ridge Pk., Limerick, PA 19468
22 W. State St., Media, PA 19063
3601 West Chester Pk., Newtown Square, PA 19073
39 W. Lancaster Ave., Paoli, PA 19301
7133 Ridge Ave., Philadelphia, PA 19128
330 Dartmouth Ave., Swarthmore, PA 19081
330 E. Lancaster Ave., Wayne, PA 19087
849 Paoli Pk., West Chester, PA 19380
23
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Leased
864,074
120,853
21,834
36,408
103,641
69,294
42,227
19,317
76,328
99,203
58,007
95,723
104,000
33,128
69,299
28,161
69,467
76,455
119,477
51,294
51,975
131,645
55,549
436 Egypt Rd., West Norriton, PA 19428
1000 Rocky Run Parkway, Wilmington, DE 19803
Life Care Community Offices (Banking Segment):
10000 Shannondell Dr., Audubon, PA 19403
404 Cheswick Pl., Bryn Mawr, PA 19010
601 N. Ithan Ave., Bryn Mawr, PA 19010
1400 Waverly Rd, Gladwyne, PA 19035
3300 Darby Rd., Haverford, PA 19041
11 Martins Run, Media, PA 19063
535 Gradyville Rd., Newtown Square, PA 19073
1615 E. Boot Rd., West Chester, PA 19380
Total Deposits:
Other Administrative Offices (Banking and Wealth Management
Segments)
2, 6 S. Bryn Mawr Ave., Bryn Mawr, PA 19010
10 S. Bryn Mawr Ave., Bryn Mawr, PA 19010***
4093 W. Lincoln Hwy., Exton, PA 19341**
16 Campus Blvd., Newtown Square, PA 19073**
322 E. Lancaster Ave., Wayne, PA 19087
1 West Chocolate Avenue, Hershey, PA 17033***
20 Montchanin Rd, Suite 185 Greenville, DE 19807**
620 W. Germantown Pk, Plymouth Mtg, PA 19462**
20 North Waterloo Rd, Devon PA 19380***
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Leased
Leased
52,224
72,068
25,114
2,819
5,374
4,169
6,804
2,899
9,136
1,709
$
2,579,675
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Powers Craft Parker & Beard Inc., 15 Garrett Ave, Rosemont, PA
19010****
Leased
Not applicable
Subsidiary Offices (Wealth Management Segment):
Lau Associates - 20 Montchanin Rd, Suite 110, Greenville, DE
19087
Leased
Not applicable
BMTC-DE - 20 Montchanin Rd, Suite 100 Greenville, DE 19807
Leased
Not applicable
* Corporate headquarters and executive offices
** Lending office
*** Wealth Management office
**** Insurance Agency
24
ITEM 3. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries is a party to, nor is any of their property the subject of, any
material pending legal proceedings other than ordinary routine litigation incidental to their businesses.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Corporation’s common stock is traded on the NASDAQ Stock Market under the symbol BMTC. As of March 2,
2017 there were 582 holders of record of the Corporation’s common stock.
The following table sets forth the range of high and low sales prices for the common stock for each full quarterly
period within the two most recent fiscal years as well as the quarterly dividends paid.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
Low
High
Dividend
Declared
High
2015
Low
Dividend
Declared
$
$
$
$
29.06 $
30.32 $
32.45 $
42.15 $
24.17 $
24.95 $
28.34 $
30.40 $
0.20 $
0.20 $
0.21 $
0.21 $
31.42 $
31.77 $
31.48 $
31.32 $
28.50 $
28.52 $
27.95 $
27.85 $
0.19
0.19
0.20
0.20
The information regarding dividend restrictions is set forth in Note 25 – “Dividend Restrictions” in the
accompanying Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
• Comparison of Cumulative Total Return Chart
The following chart compares the yearly percentage change in the cumulative shareholder return on the
Corporation’s common stock during the five years ended December 31, 2016, with (1) the Total Return of the NASDAQ
Community Bank Index; (2) the Total Return of the NASDAQ Market Index; (3) the Total Return of the SNL Bank and
Thrift Index; and (4) the Total Return of the SNL Mid-Atlantic Bank Index. This comparison assumes $100.00 was
invested on December 31, 2011, in our common stock and the comparison groups and assumes the reinvestment of all cash
dividends prior to any tax effect and retention of all stock dividends.
Total Return Performance
Bryn Mawr Bank Corporation
NASDAQ Community Bank Index
NASDAQ Market Index
SNL Bank and Thrift
SNL Mid-Atlantic Bank
280
260
240
220
200
180
160
140
120
100
e
u
l
a
V
x
e
d
n
I
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
25
Five Year Cumulative Return Summary
As of December 31,
2011
2012
2013
2014
2015
2016
Bryn Mawr Bank Corporation
$
100.00 $
117.74 $
163.98 $
174.46 $
164.40 $
248.25
NASDAQ Community Bank
Index
$
100.00 $
117.71 $
166.78 $
174.55 $
191.21 $
265.34
NASDAQ Market Index
$
100.00 $
117.45 $
164.57 $
188.84 $
201.98 $
219.89
SNL Bank and Thrift
$
100.00 $
134.28 $
183.86 $
205.25 $
209.39 $
264.35
SNL Mid-Atlantic Bank
$
100.00 $
133.96 $
180.57 $
196.72 $
204.10 $
259.43
• Equity Compensation Plan Information
The information set forth under the caption “Equity Plan Compensation Information” in the 2017 Proxy Statement is
incorporated by reference herein. Additionally, equity compensation plan information is incorporated by reference to Item
12 of this Annual Report on Form 10-K. Additional information regarding the Corporation’s equity compensation plans can
be found at Note 19 – “Stock Based Compensation” in the accompanying Notes to Consolidated Financial Statements
found in this Annual Report on Form 10-K.
• Issuer Purchases of Equity Securities
The following tables present the repurchasing activity of the Corporation during the fourth quarter of 2016:
Shares Repurchased in the 4th Quarter of 2016
TotalNumber
of Shares
Purchased
AveragePrice
Paid per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
1,147(2)(3) $
—
448(3)
1,595
$
$
31.54
—
42.06
34.50
—
—
—
—
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs(1)
189,300
189,300
189,300
189,300
Period:
Oct. 1, 2016 – Oct. 31, 2016
Nov. 1, 2016 – Nov. 30, 2016
Dec. 1, 2016 – Dec. 31, 2016
Total
(1) On August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the
Corporation may repurchase up to 1,200,000 shares of the Corporation’s common stock, at an aggregate purchase
price not to exceed $40 million. There is no expiration date on the 2015 Program and the Corporation has no plans for
an early termination of the 2015 Program. During the three months ended September 30, 2016, no repurchases
occurred under the 2015 Program. As of December 31, 2016, the maximum number of shares remaining authorized for
repurchase under the 2015 Program was 189,300.
(2) On October 5, 2016, 610 shares were purchased to cover statutory tax withholding requirements on vested stock
awards for certain officers of the Corporation.
(3) On October 4, 2016 and December 29, 2016, 537 shares and 448 shares, respectively, were purchased by the
Corporation’s deferred compensation plans through open market transactions.
26
ITEM 6.
SELECTED FINANCIAL DATA
Earnings
(dollars in thousands)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest income
Non-interest expense
Income before income taxes
Income taxes
2016
As of or for the Twelve Months Ended December 31,
2014
2013
2015
$
116,991
10,755
$
108,542
8,415
$
82,906
6,078
$
78,417
5,427
$
106,236
4,326
101,910
54,039
101,745
54,204
18,168
100,127
4,396
95,731
55,960
125,765
25,926
9,172
76,828
884
75,944
48,322
81,418
42,848
15,005
72,990
3,575
69,415
48,355
80,740
37,030
12,586
2012
73,323
8,588
64,735
4,003
60,732
46,386
74,901
32,217
11,070
Net Income
$
36,036
$
16,754
$
27,843
$
24,444
$
21,147
Per Share Data
Weighted-average shares outstanding
Dilutive potential Common Stock
Adjusted weighted-average shares
Earnings per common share:
Basic
Diluted
Dividends declared
Dividends declared per share to net income per basic
common share
Shares outstanding at year end
Book value per share
Tangible book value per share
Profitability Ratios
Tax-equivalent net interest margin
Return on average assets
Return on average equity
Non-interest expense to net interest income and non-interest
income
Non-interest income to net interest income and non-interest
income
Average equity to average total assets
Financial Condition
Total assets
Total liabilities
Total shareholders’ equity
Interest-earning assets
Portfolio loans and leases
Investment securities
Goodwill
Intangible assets
Deposits
Borrowings
Wealth assets under management, administration,
supervision and brokerage
Capital Ratios
Ratio of tangible common equity to tangible assets
Tier 1 capital to risk weighted assets
Total regulatory capital to risk weighted assets
16,859,623
168,499
17,488,325
267,966
13,566,239
294,801
13,311,215
260,395
13,090,110
151,736
17,028,122
17,756,291
13,861,040
13,571,610
13,241,846
$
$
$
2.14
2.12
$
$
0.96
0.94
$
$
2.05
2.01
$
$
1.84
1.80
$
$
0.82
$
0.78
$
0.74
$
0.69
$
1.62
1.60
0.64
38.3%
81.3%
36.1%
37.5%
39.5%
16,939,715
22.50
15.11
$
$
17,071,523
21.42
13.89
$
$
13,769,336
17.83
13.59
$
$
13,650,354
16.84
13.02
$
$
13,412,690
15.18
11.08
$
$
3.76%
1.16%
9.75%
3.75%
0.57%
4.49%
3.93%
1.32%
11.56%
3.98%
1.23%
11.53%
3.85%
1.15%
10.91%
63.5%
80.6%
65.1%
66.5%
67.4%
33.7%
11.90%
35.9%
12.68%
38.6%
11.38%
39.9%
10.63%
41.7%
10.58%
$
$
$
$
3,421,530
3,040,403
381,127
3,153,015
2,535,425
573,763
104,765
20,405
2,579,675
423,425
3,030,997
2,665,286
365,711
2,755,506
2,268,988
352,916
104,765
23,903
2,252,725
378,509
2,246,506
2,001,032
245,474
2,092,164
1,652,257
233,473
35,502
22,998
1,688,028
283,970
$
2,061,665
1,831,767
229,898
1,905,398
1,547,185
289,245
32,843
19,365
1,591,347
216,535
2,035,885
1,832,321
203,564
1,879,412
1,398,456
318,061
32,897
21,998
1,634,682
170,718
11,328,457
8,364,805
7,699,908
7,268,273
6,663,212
7.76%
10.51%
12.35%
8.17%
10.72%
12.61%
8.55%
12.00%
12.87%
8.84%
11.57%
12.55%
Asset quality
Allowance as a percentage of portfolio loans and leases
Non-performing loans and leases as a % of portfolio loans
and leases
0.69%
0.70%
0.88%
1.00%
0.33%
0.45%
0.61%
0.68%
27
7.50%
11.02%
12.02%
1.03%
1.06%
Information related to accounting changes may be found under the caption “New Accounting Pronouncements” at
Note 1-X in the accompanying Notes to Consolidated Financial Statements found in this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OPERATIONS (“MD&A”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Brief History of the Corporation
The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the
Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”) was formed and on January 2, 1987,
the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn
Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries offer a full range of personal
and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and wealth
management services, including investment management, trust and estate administration, retirement planning, custody
services, and tax planning and preparation from 25 full-service branches, eight limited-hour retirement community offices,
one limited-service branch, five wealth management offices and a full-service insurance agency located throughout
Montgomery, Delaware, Chester, Dauphin and Philadelphia counties in Pennsylvania and New Castle county in Delaware.
The common stock of the Corporation trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.
The Corporation operates in a highly competitive market area that includes local, national and regional banks as
competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors
and mutual fund families. The Corporation and its subsidiaries are regulated by many agencies including the Securities and
Exchange Commission (“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the
Pennsylvania Department of Banking and Securities. The goal of the Corporation is to become the preeminent community
bank and wealth management organization in the Philadelphia area.
Since January 1, 2010, the Corporation and Bank completed the following seven acquisitions:
• Robert J. McAllister Agency, Inc. (“RJM”) – April 1, 2015
• Continental Bank Holdings, Inc. (“CBH”) – January 1, 2015 (the “CBH Merger”)
•
•
Powers Craft Parker and Beard, Inc. (“PCPB”) – October 1, 2014
First Bank of Delaware (“FBD”) – November 17, 2012
• Davidson Trust Company (“DTC”) – May 15, 2012
• The Private Wealth Management Group of the Hershey Trust Company (“PWMG”) – May 11, 2011
•
First Keystone Financial, Inc. (“FKB”) – July 1, 2010
In addition, on January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal
Bancshares of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an
aggregate value of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge with and into
the Corporation and RBA will merge with and into the Bank. The Acquisition, which is expected to add approximately
$602 million in loans and $630 million in deposits (based on unaudited December 31, 2016 financial information),
strengthens the Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on
deposits, ranks it as the eighth largest community bank headquartered in Pennsylvania. The Acquisition, which will expand
the Corporation's distribution network by providing entry into the new markets of New Jersey and Berks County,
Pennsylvania, and a new physical presence in Philadelphia County, Pennsylvania is expected to close during the third
quarter of 2017.
For a more complete discussion regarding these acquisitions, see Item 1 – Business at page 1 in this Form 10-K.
28
Results of Operations
The following is management’s discussion and analysis of the significant changes in the results of operations, capital
resources and liquidity presented in the accompanying consolidated financial statements. The Corporation’s consolidated
financial condition and results of operations are comprised primarily of the Bank’s financial condition and results of
operations. Current performance does not guarantee, and may not be indicative of, similar performance in the future. For
more information on the factors that could affect performance, see “Special Cautionary Notice Regarding Forward Looking
Statements” immediately following the index at the beginning of this document.
Critical Accounting Policies, Judgments and Estimates
The accounting and reporting policies of the Corporation and its subsidiaries conform to U.S. generally accepted
accounting principles (“GAAP”). All inter-company transactions are eliminated in consolidation and certain
reclassifications are made when necessary in order to conform the previous years' financial statements to the current year’s
presentation. In preparing the consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and
expenditures for the periods presented. Therefore, actual results could differ from these estimates.
The Allowance for Loan and Lease Losses (the “Allowance”)
The Allowance involves a higher degree of judgment and complexity than other significant accounting policies. The
Allowance is estimated with the objective of maintaining a reserve level believed by the Corporation to be sufficient to
absorb estimated credit losses present in the loan portfolio as of the reporting date. The Corporation’s determination of the
adequacy of the allowance is based on frequent evaluations of the loan and lease portfolio and other relevant factors.
Consideration is given to a variety of factors in establishing the estimate. Quantitative factors in the form of historical
charge-off history by portfolio segment are considered. In connection with these quantitative factors, management
establishes what it deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 2016,
the Corporation utilized a five-year LBP, which it believes adequately captures the trends in charge-offs. In addition,
management develops an estimate of a loss emergence period (“LEP”) for each segment of the loan portfolio. The LEP
estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan. As of
December 31, 2016, the Corporation utilized a two-year LEP for its commercial loan segments and a one-year LEP for its
consumer loan segments based on analyses of actual charge-offs tracked back in time to the triggering event for the
eventual loss. In addition, various qualitative factors are considered, including specific terms and conditions of loans and
leases, underwriting standards, delinquency statistics, industry concentration, overall exposure to a single customer,
adequacy of collateral, the dependence on collateral, and results of internal loan review, including a borrower’s perceived
financial and management strengths, the amounts and timing of the present value of future cash flows, and the access to
additional funds. It should be noted that this evaluation is inherently subjective as it requires material estimates, including,
among others, expected default probabilities, the amounts and timing of expected cash flows on impaired loans and leases,
the value of collateral, estimated losses on consumer loans and residential mortgages and the relevance of historical loss
experience. The process also considers economic conditions and inherent risks in the loan and lease portfolio. All of these
factors may be susceptible to significant change. To the extent actual outcomes differ from the Corporation’s estimates,
additional provision for loan and lease losses (the “Provision”) may be required that would adversely impact earnings in
future periods. See the section of this document titled Asset Quality and Analysis of Credit Risk for additional information.
Fair Value Measurement of Investment Securities Available-for-Sale and Assessment for Impairment of Certain
Investment Securities
The Corporation may designate its investment securities as held-to-maturity, available-for-sale or trading. Each of these
designations affords different treatment for changes in the fair market values of investment securities in the Corporation’s
financial statements that are otherwise identical. Should evidence emerge which indicates that management’s intent or
ability to maintain the securities as originally designated is not supported, reclassifications among the three designations
may be necessary and, as a result, may require adjustments to the Corporation’s financial statements. As of December 31,
2016, the Corporation’s investment portfolio was primarily comprised of investment securities classified as available for
sale.
29
Valuation of Goodwill and Other Intangible Assets
Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with its
acquisitions. The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often if events
and circumstances indicate that there may be impairment. The Corporation also completes an annual impairment test for
other intangible assets, or more often, if events and circumstances indicate a possible impairment. During 2016, the
Corporation made a voluntary change in the method of applying an accounting principle related to the timing of the annual
goodwill impairment assessment from December 31st to October 31st. Management made this decision based on the time-
intensive nature of the goodwill impairment assessment. Management does not consider this change in impairment testing
date to be a material change in application of an accounting principle. There was no goodwill impairment recorded during
the twelve month periods ended December 31, 2016, 2015 or 2014. During the twelve months ended December 31, 2015,
impairment of $387 thousand was recorded related to a favorable lease asset that had been recorded in connection with the
CBH Merger. Subsequent to the CBH Merger, a decision was made to terminate the lease of the former CBH headquarters,
which resulted in the favorable lease asset impairment charge. There was no impairment of identifiable intangible assets
during the twelve month periods ended December 31, 2016 or 2015. There can be no assurance that future impairment
assessments or tests will not result in a charge to earnings.
Other significant accounting policies are presented in Note 1, Summary of Significant Accounting Policies, in the Notes to
Consolidated Financial Statements. The Corporation’s accounting policies have not substantively changed any aspect of its
overall approach in the application of the foregoing policies.
Overview of General Economic, Regulatory and Governmental Environment
Real GDP for the fourth quarter of 2016 indicated a quarter-over-quarter increase of 1.9%, below the 2.2% consensus
forecast and showed a deceleration from the robust 3.5% pace of the third quarter of 2016. For the full year of 2016, Real
GDP grew at a 1.6% pace, down from the 2015 growth rate of 2.6%. One clear area of GDP strength has been that of
consumer, where strong spending and confidence data have been largely supported by job growth and an improving wage
growth picture. Measures of consumer confidence are reaching levels not seen in more than 10 years. The Conference
Board Consumer Confidence Index had jumped to 113.3 in December 2016, a 15-year high, before retreating modestly in
January to 111.8.
The Federal Open Market Committee met on January 26-27, 2017 leaving short term interest rates unchanged. The
Committee’s statement included the following: “The stance of monetary policy remains accommodative, thereby
supporting further improvement in labor market conditions and a return to 2 percent inflation.”
The focus of attention has now moved from the presidential and congressional elections that took place in November 2016,
to implementation expectations for fiscal stimulus measures and regulatory relief.
We acknowledge that there are plenty of geopolitical risks present that could alter the economic landscape as we progress
through 2017. That said, a combination of lower taxes, less regulation, and increased infrastructure spending could
stimulate economic growth and prolong this economic expansion, which is long by historic standards.
Executive Overview
The following Executive Overview provides a summary-level review of the results of operation for 2016 compared to 2015
and 2015 compared to 2014 as well as a comparison of the December 31, 2016 balance sheet as compared to the December
31, 2015 balance sheet. More detailed information regarding these comparisons can be found in the sections that follow.
2016 Compared to 2015
Income Statement
The Corporation reported net income of $36.0 million or $2.12 diluted earnings per share for the twelve months ended
December 31, 2016, as compared to $16.8 million, or $0.94 diluted earnings per share, for the same period in 2015. Return
on average equity ("ROE") and return on average assets ("ROA") for the twelve months ended December 31, 2016, were
9.75% and 1.16%, respectively, as compared to 4.49% and 0.57%, respectively, for the same period in 2015. The increase
in net income for the twelve months ended December 31, 2016, as compared to the same period in 2015, was largely
related to the $17.4 million pre-tax loss on the settlement of the corporate pension plan, which was recorded for the twelve
30
months ended December 31, 2015. In addition to the absence of the pension settlement charge, net interest income for the
twelve months ended December 31, 2016 increased by $6.1 million and due diligence, merger-related and merger
integration expenses decreased by $6.7 million from the same period in 2015.
The $6.2 million increase in the Corporation’s tax-equivalent net interest income for the twelve months ended December
31, 2016, as compared to the same period in 2015, was related to a $268.8 million increase in average loans offset by a
$117.8 million decrease in interest-earning deposits with other banks. This redeployment of low-yielding cash on deposit
with other banks to higher yielding loans resulted in an $8.2 million increase in tax-equivalent interest income. The tax-
equivalent yield earned on loans for the twelve months ended December 31, 2016 was 4.57%, while the tax-equivalent
yield earned on interest-earning deposits with other banks was only 0.39%. Partially offsetting the increase in average
loans, average interest-bearing deposits increased by $86.4 million, accompanied by an 8 basis point increase in rate paid
on deposits. Average long-term Federal Home Loan Bank (“FHLB”) advances and other borrowings decreased by $29.0
million between the twelve month periods ended December 31, 2015 and 2016 as the inflow of deposits during 2016
alleviated the need to increase borrowings to support loan growth.
For the twelve months ended December 31, 2016, the Provision of $4.3 million was virtually unchanged from the $4.4
million recorded for the same period in 2015. Net loan and lease charge offs for the twelve months ended December 31,
2016 totaled $2.7 million, a decrease of $428 thousand from the same period in 2015.
Non-interest income for the twelve months ended December 31, 2016 was $54.0 million, a $1.9 million decrease from the
same period in 2015. Decreases of $1.0 million in gain on sale of available for sale investment securities, $319 thousand in
dividends on FHLB and Federal Reserve Bank (“FRB”) stocks and $204 thousand in fees for wealth management services
were the primary contributors to this decrease.
Non-interest expense for the twelve months ended December 31, 2016, was $101.7 million, a decrease of $24.0 million, as
compared to the same period in 2015. The primary causes of this decrease were the absences of the $17.4 million loss on
settlement of the corporate pension and the $6.7 million in due diligence, merger-related and merger integration costs
recorded in 2015. Partially offsetting these improvements were increases of $2.8 million and $679 thousand in salaries and
wages and furniture, fixtures and equipment, respectively.
Balance Sheet
Asset quality as of December 31, 2016 is stable, with nonperforming loans and leases comprising 0.33% of portfolio loans
as compared to 0.45% of portfolio loans as of December 31, 2015. The Allowance of $17.5 million was 0.69% of portfolio
loans and leases as of December 31, 2016, as compared to $15.9 million, or 0.70% of portfolio loans and leases, at
December 31, 2015. The relatively unchanged level of Allowance reflects the continued strength of credit quality in the
loan portfolio.
Total portfolio loans and leases of $2.54 billion as of December 31, 2016 increased $266.4 million, or 11.7%, from $2.27
billion as of December 31, 2015.
The Corporation’s available for sale investment portfolio as of December 31, 2016 had a fair value of $567.0 million, as
compared to $349.0 million at December 31, 2015. Largely responsible for the increase was the purchase, in December
2016, of $200 million of short-term treasury bills.
Deposits of $2.58 billion, as of December 31, 2016, increased $327.0 million from December 31, 2015. One third of the
increase in deposits was in the non-interest-bearing segment of the portfolio.
Wealth Assets
Wealth assets under management, administration, supervision and brokerage increased to $11.33 billion as of December
31, 2016, an increase of $2.96 billion from $8.36 billion as of December 31, 2015. A significant portion of the increase was
in flat- or fixed-fee accounts.
31
2015 Compared to 2014
Income Statement
It should be noted that much of the increase in income and expense for the twelve months ended December 31, 2015, as
compared to the same period in 2014 was the result of the CBH Merger, which initially increased interest-earning assets by
$617.4 million, interest-bearing liabilities by $516.2 million, and added ten new branch locations.
The Corporation reported net income of $16.8 million or $0.94 diluted earnings per share for the twelve months ended
December 31, 2015, as compared to $27.8 million, or $2.01 diluted earnings per share, for the same period in 2014. ROE
and ROA for the twelve months ended December 31, 2015, were 4.49% and 0.57%, respectively, as compared to 11.56%
and 1.32%, respectively, for the same period in 2014. The decrease in net income for the twelve months ended December
31, 2015, as compared to the same period in 2014 was a direct result of the $17.4 million pre-tax loss on the settlement of
the pension plan. In addition to the loss on the pension plan settlement, there were increases in net interest income, non-
interest income and non-interest expense which were all largely related to the CBH Merger.
The $23.4 million, or 30.3%, increase in the Corporation’s tax-equivalent net interest income for the twelve months ended
December 31, 2015, as compared to the same period in 2014, was attributed to the $424.2 million of portfolio loans
acquired in the CBH Merger, in addition to the $192.5 million of organic loan growth experienced during 2015. Average
loans increased by $551.4 million for the twelve months ended December 31, 2015, as compared to the same period in
2014. Partially offsetting this increase in average loans, average interest-bearing deposits increased by $453.0 million,
related to the $387.8 million of interest-bearing deposits assumed in the CBH Merger. In addition, combined average short-
term and long-term borrowings increased by $47.7 million and average subordinated notes, which were originated in
August 2015, increased $12.0 million for the twelve months ended December 31, 2015 as compared to the same period in
2014. The tax-equivalent yield on interest-earning assets decreased 17 basis points, while the tax equivalent rate paid on
interest-bearing liabilities remained unchanged for the twelve months ended December 31, 2015 as compared to the same
period in 2014.
For the twelve months ended December 31, 2015, the Provision of $4.4 million was an increase of $3.5 million from the
$884 thousand for the same period in 2014. Net loan and lease charge offs for the twelve months ended December 31, 2015
totaled $3.1 million, an increase of $1.3 million from the same period in 2014.
Non-interest income for the twelve months ended December 31, 2015 was $56.0 million, a $7.6 million increase from the
same period in 2014. Increases of $2.6 million in wealth management revenue, $1.3 million in gain on sale of loans, $1.8
million in other operating income and $767 thousand in dividends on FHLB and FRB stocks contributed to the increase.
Non-interest expense for the twelve months ended December 31, 2015, was $125.8 million, an increase of $44.3 million, as
compared to the same period in 2014. Largely contributing to the increase was the $17.4 million loss on settlement of the
pension plan, a $4.3 million increase in due diligence, merger-related and merger integration costs as well as increases in
nearly all other expense lines as a result of the increased staffing and facilities added in the CBH Merger.
Components of Net Income
Net income is comprised of five major elements:
• Net Interest Income, or the difference between the interest income earned on loans, leases and investments and
the interest expense paid on deposits and borrowed funds;
• Provision For Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent
losses on portfolio loans and leases;
• Non-Interest Income, which is made up primarily of wealth management revenue, gains and losses from the sale
of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other
fees from loan and deposit services;
• Non-Interest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset
amortization, professional fees and other operating expenses; and
Income Taxes, which include state and federal jurisdictions.
•
32
Net Interest Income
Rate/Volume Analyses (Tax-equivalent Basis)*
The rate volume analysis in the table below analyzes dollar changes in the components of interest income and interest
expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net
interest income for the years 2016 as compared to 2015, and 2015 as compared to 2014, allocated by rate and volume. The
change in interest income / expense due to both volume and rate has been allocated to changes in volume.
(dollars in thousands)
increase/(decrease)
Interest Income:
Year Ended December 31,
2016 Compared to 2015
2015 Compared to 2014
Volume Rate
Total
Volume Rate
Total
Interest-bearing deposits with banks
Investment securities - taxable
Investment securities –nontaxable
Loans and leases
$
Total interest income
Interest expense:
Savings, NOW and market rate
accounts
Wholesale deposits
Retail time deposits
Borrowed funds – short-term
Borrowed funds – long-term
Subordinated notes
Total interest expense
Interest differential
$
(300) $
213
(19)
12,636
12,530
59 $
373
20
(4,418)
(3,966)
(241) $
586
1
8,218
8,564
183 $
1,324
76
27,151
28,734
33 $
107
71
(3,225)
(3,014)
216
1,431
147
23,926
25,720
167
192
48
1
(404)
864
868
11,662 $
—
276
938
44
203
11
1,472
(5,438) $
167
468
986
45
(201)
875
2,340
6,224 $
427
198
604
24
391
601
2,245
26,489 $
216
(53)
(78)
7
—
—
92
643
145
526
31
391
601
2,337
(3,106) $ 23,383
* The tax rate used in the calculation of the tax-equivalent income is 35%.
33
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:
2016
Interest
Income/
Expense
Average
Rates
Earned/
Paid
For the Year Ended December 31,
2015
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
2014
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
Average
Balance
43,214 $
168
0.39% $ 161,032 $
409
0.25% $
83,163 $
193
0.23%
329,161
38,173
5,784
742
1.76%
1.94%
315,741
39,200
5,124
741
1.62%
1.89%
233,054
34,689
3,740
594
1.60%
1.71%
367,334
2,060
3,740
6,526
4
2
2,429,416 110,925
2,845,764 117,625
16,317
(17,159)
260,728
$ 3,105,650
354,941
—
3,881
5,865
1.78%
—
0.19%
0.05%
80
4.57% 2,160,628 102,707
4.13% 2,680,482 109,061
17,615
(15,099)
259,515
$ 2,942,513
267,743
—
3,591
4,334
1.65%
—
—
2.06%
33
4.75% 1,609,220 78,781
4.07% 1,963,717 83,341
12,730
(15,836 )
154,871
$ 2,115,482
1.62%
—
0.92%
4.90%
4.24%
(dollars in thousands)
Assets:
$
Interest-bearing deposits with banks
Investment securities - available for sale:
Taxable
Tax –Exempt
Total investment securities –
available for sale
Investment securities – held to maturity
Investment securities – trading
Loans and leases(1)(2)(3)
Total interest-earning assets
Cash and due from banks
Allowance for loan and lease losses
Other assets
Total assets
Liabilities:
Savings, NOW, and market rate accounts $ 1,292,228 $
163,724
Wholesale deposits
266,772
Time deposits
Total interest-bearing deposits 1,722,724
37,041
225,815
29,503
Short-term borrowings
FHLB advances and other borrowings
Subordinated notes
2,485
1,240
2,108
5,833
93
3,353
1,476
0.19% $ 1,249,567 $
130,773
0.76%
0.79%
255,961
0.34% 1,636,301
36,010
0.25%
254,828
1.48%
12,013
5.00%
Total interest-bearing
liabilities
Non-interest-bearing deposits
Other liabilities
Total non-interest-bearing
liabilities
Total liabilities
Shareholders’ equity
Total liabilities and
2,015,083 10,755
687,134
33,904
721,038
2,736,121
369,529
shareholders’ equity
$ 3,105,650
Net interest spread
Effect of non-interest-bearing sources
Net interest income/margin on earning
0.53% 1,939,152
594,122
36,151
630,273
2,569,425
373,088
$ 2,942,513
2,318
772
1,122
4,212
48
3,554
601
8,415
0.19% $ 958,129
99,059
0.59%
0.44%
126,097
0.26% 1,183,285
15,960
0.13%
227,137
1.39%
—
5.00%
1,675
627
596
2,898
17
3,163
—
0.17%
0.63%
0.47%
0.24%
0.11%
1.39%
0.43% 1,426,382
426,274
22,048
6,078
0.43%
448,322
1,874,704
240,778
$ 2,115,482
3.81%
0.12%
3.93%
0.02%
assets
$ 77,263
435
$
Tax-equivalent adjustment (tax rate 35%)
(1) Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been
$ 100,646
519
$
$ 106,870
634
$
3.76%
0.02%
3.75%
0.02%
included for purposes of determining interest income.
(2) Includes portfolio loans and leases and loans held for sale.
(3) Interest on loans and leases includes deferred fees of $522, $424 and $248 for the years ended December 31, 2016, 2015
and 2014, respectively.
Tax-Equivalent Net Interest Income and Margin – 2016 Compared to 2015
The tax-equivalent net interest margin increased 1 basis point to 3.76% for the twelve months ended December 31, 2016, as
compared to 3.75%, for the same period in 2015. The effect on interest income of the $268.8 million increase in average
loans between periods was partially offset by an 18 basis point decrease in tax-equivalent yield earned on loans and leases
between periods. On the liability side, the $86.4 million increase in average interest-bearing deposits, accompanied by an 8
basis point increase in rate paid on deposits and the $29.0 million decrease in long-term FHLB advances and other
borrowings whose rate paid increased by 9 basis points, combined to offset the margin improvement from the asset growth.
34
3.60%
0.16%
3.64%
0.11%
Tax-equivalent net interest income for the twelve months ended December 31, 2016 of $106.9 million, was $6.2 million
higher than the tax-equivalent net interest income of $100.6 million for the same period in 2015. The primary driver for the
increase in tax-equivalent net interest income was the volume increase in average loans and leases, partially offset by a
yield decrease, which added $8.2 million in interest income. The impact of this loan growth was partially offset by a
volume increase and an increase in rate paid for interest-bearing deposits, which decreased tax-equivalent net interest
income by $1.6 million.
Tax-Equivalent Net Interest Income and Margin - 2015 Compared to 2014
The tax-equivalent net interest margin decreased 18 basis points to 3.75% for the twelve months ended December 31, 2015,
as compared to 3.93%, for the same period in 2014. Largely contributing to the decline was the 15 basis point decrease in
yield on loans and leases for 2015 as compared to 2014. Although the loans acquired in the CBH Merger contributed to the
margin through the accretion of their loan marks, the lower-interest-rate environment in 2015 resulted in new loan volume
being originated at lower yields than the yields in the portfolio as of December 31, 2014. The decrease in tax-equivalent
yield on loans was partially offset by a 3 basis point increase in yield on available for sale investment securities. On the
liability side, the 4.75% fixed-to-floating rate subordinated notes issued in August 2015 affected the tax-equivalent yield
for 2015. The average balance of subordinated notes for the twelve months ended December 31, 2015 totaled $12.0 million
at a rate of 5.00%. Also driving the tax equivalent yield down, to a lesser extent, the rate paid on interest-bearing deposits
increased by 2 basis points, while rates paid on borrowings remained unchanged from 2014 to 2015.
Tax-equivalent net interest income for the twelve months ended December 31, 2015 of $100.6 million, was $23.4 million,
or 30.3%, higher than the tax-equivalent net interest income of $77.3 million for the same period in 2014. The primary
driver for the increase in tax-equivalent net interest income was the volume of interest-earning assets and interest-bearing
liabilities added in CBH Merger. The CBH Merger added $424.2 million of portfolio loans, while organic loan growth
contributed another $192.5 million of portfolio loans. The average balance of loans increased by $551.4 million for the
twelve months ended December 31, 2015, as compared to the same period in 2014. Interest-bearing deposits assumed in the
CBH Merger totaled $387.8 million. Average interest-bearing deposits for the twelve months ended December 31, 2015
increased by $453.0 million as compared to the same period in 2014. In addition to the assets and liabilities acquired in the
CBH Merger, the Corporation issued $30.0 million of 4.75% fixed-to-floating rate subordinated notes in August 2015. Of
the $23.4 million increase in tax-equivalent net interest income between 2014 and 2015, volume increases of both interest-
earning assets and interest-bearing liabilities accounted for a $26.5 million increase while decreases in yields on interest-
earning assets and increases on rates paid on interest-bearing liabilities accounted for a $2.3 million decrease in tax-
equivalent net interest income.
Tax-Equivalent Net Interest Margin – Quarterly Comparison
The tax-equivalent net interest margin and related components for the past five quarters are shown in the table below:
Earning-Asset
Yield
Interest-
Bearing
Liability Cost
Net Interest
Spread
Effect of Non-
Interest-
Bearing
Sources
Tax-Equivalent
Net Interest
Margin
4.05%
4.09 %
4.18 %
4.22 %
4.11%
0.56%
0.55 %
0.53 %
0.49 %
0.48%
3.49 %
3.54 %
3.65 %
3.73 %
3.63 %
0.16%
0.17 %
0.16 %
0.14 %
0.14%
3.65%
3.71 %
3.81 %
3.87 %
3.77%
Quarter
4th
3rd
2nd
1st
4th
Year
2016
2016
2016
2016
2015
Interest Rate Sensitivity
The Corporation actively manages its interest rate sensitivity position. The objectives of interest rate risk management are
to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable
growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies and procedures
approved by the Corporation’s Board of Directors, is responsible for the management of the Corporation’s interest rate
sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing
characteristics of its assets and liabilities. This is accomplished through the management of the investment portfolio, the
pricings of loans and deposit offerings and through wholesale funding. Wholesale funding is available from multiple
sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window, federal funds
35
from correspondent banks, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry
Service (“CDARS”), Insured Network Deposit (“IND”) Program, Charity Deposits Corporation (“CDC”) (formerly known
as Institutional Deposit Corporation (“IDC”)), Insured Cash Sweep (“ICS”) and Pennsylvania Local Government
Investment Trust (“PLGIT”).
The Corporation uses several tools to measure the effect of interest rate risk on its net interest income. These methods
include gap analysis, market value of portfolio equity analysis, net interest income simulations under various scenarios and
tax-equivalent net interest margin reports. The results of these reports are compared to limits established by the
Corporation’s ALCO policies and appropriate adjustments are made if the results are outside the established limits.
The following table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel
interest rate shift, or “shock”, in the yield curve and subjective adjustments in deposit pricing, might have on the
Corporation’s projected net interest income over the next 12 months.
This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve
months. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines.
Summary of Interest Rate Simulation
Change in Net Interest Income
Over the Twelve Months
Beginning After
December 31, 2016
Amount
Percentage
Change in Net Interest Income
Over the Twelve Months
Beginning After
December 31, 2015
Amount
Percentage
+300 basis points
+200 basis points
+100 basis points
-100 basis points
$
$
$
$
10,207
6,653
3,048
(4,397)
$
9.01%
$
5.87%
2.69%
$
(3.88)% $
3,128
1,637
210
(2,490)
3.09%
1.62%
0.21%
(2.46)%
The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of December 31, 2016
in the +100 basis point scenario, demonstrating that a 100 basis point increase in interest rates would have a positive impact
on net interest income over the next 12 months. The balance sheet is more asset sensitive in a rising-rate environment as of
December 31, 2016 than it was as of December 31, 2015. This increase in sensitivity is related to a decrease in cash
balances, an increase in floating rate loans, and an increase in fixed rate certificates of deposit. The magnitude of the
change in net interest income resulting from a 100 basis point decrease in rates as compared to the magnitude of the
increase in net income accompanying a 100 basis point increase in rates is the result of the ability to decrease loan rates to
more of a degree than deposits rates in a down 100 basis point rate shift.
The interest rate simulation is an estimate based on assumptions, which are derived from past behavior of customers, along
with expectations of future behavior relative to interest rate changes. In today’s uncertain economic environment and the
current extended period of very low interest rates, the reliability of the Corporation’s assumptions in the interest rate
simulation model is more uncertain than in prior periods. Actual customer behavior, as it relates to deposit activity, may be
significantly different than expected behavior, which could cause an unexpected outcome and may result in lower net
interest income than that derived from the analysis referenced above.
Gap Analysis
The interest sensitivity, or gap analysis, identifies interest rate risk by showing repricing gaps in the Corporation’s balance
sheet. All assets and liabilities are reflected based on behavioral sensitivity, which is usually the earliest of either: repricing,
maturity, contractual amortization, prepayments or likely call dates. Non-maturity deposits, such as NOW, savings and
money market accounts are spread over various time periods based on the expected sensitivity of these rates considering
liquidity and the investment preferences of the Corporation. Non-rate-sensitive assets and liabilities are spread over time
periods to reflect the Corporation’s view of the maturity of these funds.
Non-maturity deposits (demand deposits in particular) are recognized by the Bank’s 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 these deposits is reported as
36
having a shorter life than typical retail demand deposits. Additionally, the Bank’s regulatory agencies have suggested
distribution limits for non-maturity deposits. However, the Corporation has taken a more conservative approach than these
limits would suggest by forecasting these deposit types with a shorter maturity. The following table presents the
Corporation’s gap analysis as of December 31, 2016:
(dollars in millions)
Assets:
Interest-bearing deposits with
0 to 90
Days
91 to 365
Days
1 - 5
Years
Over
5 Years
Non-Rate
Sensitive Total
banks
Investment securities(1)
Loans and leases(2)
Allowance
Cash and due from banks
Other assets
Total assets
$
$
34.2 $
236.0
912.7
—
—
—
1,182.9 $
— $
61.2
306.1
—
—
—
367.3 $
— $
181.3
967.6
—
—
—
1,148.9 $
— $
95.2
358.7
—
—
—
453.9 $
— $
—
—
(17.5)
16.6
269.4
268.5 $
34.2
573.7
2,545.1
(17.5 )
16.6
269.4
3,421.5
Liabilities and shareholders’
equity:
Demand, non-interest-bearing
$
Savings, NOW and market rate
Time deposits
Wholesale non-maturity
deposits
Wholesale time deposits
Short-term borrowings
FHLB advances and other
borrowings
Subordinated notes
Other liabilities
Shareholders’ equity
Total liabilities and
shareholders’ equity
Interest-earning assets
Interest-bearing liabilities
Difference between interest-
earning assets and interest-
bearing liabilities
Cumulative difference between
interest earning assets and
interest-bearing liabilities
45.6 $
95.3
35.4
136.7 $
286.0
243.6
191.6 $
678.7
43.8
362.3 $
313.2
0.1
— $
—
—
736.2
1,373.2
322.9
74.3
6.6
204.2
30.0
—
—
13.6
—
30.6
—
45.0
—
—
40.8
—
35.9
—
114.7
29.5
—
217.8
—
—
—
—
—
—
108.9
—
—
—
—
—
37.3
—
74.3
73.1
204.2
189.7
29.5
37.3
381.1
$
$
505.0 $
1,182.9 $
445.8
782.7 $
367.3 $
605.2
1,312.0 $
1,148.9 $
902.6
784.5 $
453.9 $
313.3
37.3 $
— $
—
3,421.5
3,153.0
2,266.9
$
737.1 $
(237.9) $
246.3 $
140.6 $
— $
886.1
$
737.1 $
499.2 $
745.4 $
886.1 $
— $
886.1
Cumulative earning assets as a %
of cumulative interest bearing
liabilities
138%
(1) Investment securities include available for sale, held to maturity and trading.
(2) Loans include portfolio loans and leases and loans held for sale.
265%
147%
139%
The table above indicates that the Corporation is asset sensitive and should experience an increase in net interest income in
the near term, if interest rates rise. Accordingly, if rates decline, net interest income should decline. Actual results may
differ from expected results for many reasons including market reactions, competitor responses, customer behavior and/or
regulatory actions.
Provision for Loan and Lease Losses
General Discussion of the Allowance for Loan and Lease Losses
The balance of the allowance for loan and lease losses is determined based on the Corporation’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
37
events and conditions, and other pertinent factors, including the Corporation’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 the Corporation 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 the Corporation’s assumptions as to future
delinquencies, recoveries and losses and the Corporation’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
processes, periodically review the Corporation’s Allowance.
The Corporation’s Allowance is comprised of four components that are calculated based on various independent
methodologies. All components of the Allowance are based on Management’s estimates. These estimates are summarized
earlier in this document under the heading “Critical Accounting Policies, Judgments and Estimates.”
The four components of the Allowance are as follows:
•
Specific Loan Evaluation Component – Loans and leases for which management has reason to believe it is
probable that it will not be able to collect all contractually due amounts of principal and interest are evaluated for
impairment on an individual basis and a specific allocation of the Allowance is assigned, if necessary.
• Historical Charge-Off Component – Homogeneous pools of loans are evaluated to determine average historic
charge-off rates. Management applies a rolling, twenty quarter charge-off history as a look-back period to
determine these average charge-off rates. Management evaluates the length of this look-back period in order to
determine its appropriateness. In addition, management develops an estimate of a loss emergence period for each
segment of the loan portfolio. The loss emergence period estimates the time between the occurrence of a loss
event for a borrower and an actual charge-off of a loan.
• Qualitative Factors Component – Various qualitative factors are considered as they relate to the different
homogeneous loan pools in order to adjust the historic charge-off rates so that they reflect current economic
conditions that may not be accurately reflected in the historic charge-off rates. These factors include delinquency
trends, economic conditions, loan terms, credit grades, concentrations of credit, regulatory environment and other
relevant factors. The resulting adjustments are combined with the historic charge-off rates and result in an
allocation rate for each homogeneous loan pool.
• Unallocated Component – This amount represents the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating the specific, historical, and qualitative losses in the
portfolio discussed above. There are many factors considered, such as the inherent delay in obtaining information
regarding a customer’s financial information or changes in their business condition, the judgmental nature of loan
and lease evaluations, the delay in interpreting economic trends, and the judgmental nature of collateral
assessments.
As part of the process of calculating the Allowance for the different segments of the loan and lease portfolio, management
considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan
segments, periodic reviews of the individual loans are performed by both in-house employees as well as an external loan
review service. The results of these reviews are reflected in the risk grade assigned to each loan. These internally assigned
grades are as follows:
• Pass – Loans considered satisfactory with no indications of deterioration.
•
•
Special mention - Loans classified as special mention have a potential weakness that deserves management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment
capacity of the obligor or of the collateral pledged, if any. Substandard loans have well-defined weaknesses that
38
may jeopardize the liquidation of the collateral and repayment of the debt. They are characterized by the distinct
possibility that the institution will sustain some loss if the deficiencies are not corrected.
• Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with
the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable. Loan balances classified as doubtful have been
reduced by partial charge-offs and are carried at their net realizable values.
Consumer credit exposure, which includes residential mortgages, home equity lines and loans, leases and consumer loans,
are assigned a credit risk profile based on payment activity (that is, their delinquency status).
Refer to Note 5-F in the Notes to Consolidated Financial Statements for details regarding credit quality indicators
associated with the Corporation’s loan and lease portfolio.
Portfolio Segmentation – The Corporation’s loan and lease portfolio is divided into specific segments of loans and leases
having similar characteristics. These segments are as follows:
• Commercial mortgage
• Home equity lines and loans
• Residential mortgage
• Construction
• Commercial and industrial
• Consumer
• Leases
Refer to Note 5 in the Notes to Consolidated Financial Statements and the section of this MD&A under the heading
“Portfolio Loans and Leases” for details of the Corporation’s loan and lease portfolio, broken down by portfolio segment.
Impairment Measurement – In accordance with guidance provided by ASC 310-10, "Receivables", the Corporation
employs one of three methods to determine and measure impairment:
•
•
•
the Present Value of Future Cash Flow Method;
the Fair Value of Collateral Method;
the Observable Market Price of a Loan Method.
Loans and leases for which there is an indication that all contractual payments may not be collectible are evaluated for
impairment on an individual basis. Loans that are evaluated on an individual basis include non-performing loans, troubled
debt restructurings and purchased credit-impaired loans.
Nonaccrual Loans – In general, loans and leases that are delinquent on contractually due principal or interest payments for
more than 89 days are placed on nonaccrual status and any unpaid interest is reversed as a charge to interest income. When
the loan resumes payment, all payments (principal and interest) are applied to reduce principal. After a period of six months
of satisfactory performance, the loan may be placed back on accrual status. Any interest payments received during the
nonaccrual period that had been applied to reduce principal are reversed and recorded as a deferred fee which accretes to
interest income over the remaining term of the loan or lease. In certain cases, the Corporation may have information about a
particular loan or lease that may indicate a future disruption or curtailment of contractual payments. In these cases, the
Corporation will preemptively place the loan or lease on nonaccrual status.
Troubled Debt Restructurings (“TDRs”) - The Corporation follows guidance provided by ASC 310-40, “Troubled Debt
Restructurings by Creditors.” A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons
related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider in the
normal course of business. A concession may include an extension of repayment terms which would not normally be
granted, a reduction of interest rate or the forgiveness of principal and/or accrued interest. If the debtor is experiencing
financial difficulty and the creditor has granted a concession, the Corporation will make the necessary disclosures related to
the TDR. In certain cases, a modification may be made in an effort to retain a customer who is not experiencing financial
difficulty. This type of modification is not considered to be a TDR. Once a loan or lease has been modified and is
considered a TDR, it is reported as an impaired loan or lease. If the loan or lease deemed a TDR has performed for at least
six months at the level prescribed by the modification, it is not considered to be non-performing; however, it will generally
39
continue to be reported as impaired. Loans and leases that have performed for at least six months are reported as TDRs in
compliance with modified terms.
Refer to Note 5-G in the Notes to Consolidated Financial Statements for more information regarding the Corporation's
TDRs.
Charge-off Policy - The Corporation’s charge-off policy is that, on a periodic basis, not less often than quarterly,
delinquent and non-performing loans that exceed the following limits are considered for full or partial charge-off:
• Open-ended consumer loans exceeding 180 days past due.
• Closed-ended consumer loans exceeding 120 days past due.
• All commercial/business purpose loans exceeding 180 days past due.
• All leases exceeding 120 days past due.
Any other loan or lease, for which the Corporation has reason to believe collectability is unlikely, and for which sufficient
collateral does not exist, is also charged off.
Refer to Note 5-F in the Notes to Consolidated Financial Statements for more information regarding the Corporation's
charge-offs and factors which influenced Management’s judgment with respect thereto.
Loans Acquired in Mergers and Acquisitions
In accordance with GAAP, the loans acquired from FKB, FBD and CBH were recorded at their fair value with no carryover
of the previously associated allowance for loan loss.
Certain loans were acquired which exhibited deteriorated credit quality since origination and for which the Corporation
does not expect to collect all contractual payments. Accounting for these purchased credit-impaired (“PCI”) loans is done
in accordance with ASC 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality”.
The loans were recorded at fair value, reflecting the present value of the amounts expected to be collected. Income
recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected.
Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral
indeterminate, remain on non-accrual status and have no accretable yield. On a regular basis, at least quarterly, an
assessment is made on PCI loans to determine if there has been any improvement or deterioration of the expected cash
flows. If there has been improvement, an adjustment is made to increase the recognition of interest on the PCI loan, as the
estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in the expected cash flows of a PCI
loan, a Provision is recorded in connection with the loan. Management evaluates PCI loans individually for further
impairment as well as for improvements to expected cash flows.
Loans acquired in mergers and acquisitions which do not exhibit deteriorated credit quality at the time of acquisition are
accounted for under ASC 310-20 and receive a loan mark based on credit and interest-rate. The resulting discount or
premium is accreted or amortized, respectively, to interest income over their remaining maturity. These non-impaired
acquired loans, along with the balance of the Corporation's loan and lease portfolio are evaluated on either an individual
basis or on a collective basis for impairment. For a more information regarding the Corporation's impaired loans and leases,
refer to Notes 5-F and 5-H and for more information regarding loan marks, refer to Note 5-I in the Notes to Consolidated
Financial Statements.
Asset Quality and Analysis of Credit Risk
As of December 31, 2016, total non-performing loans and leases were $8.4 million, representing 0.33% of portfolio loans
and leases, as compared to $10.2 million, or 0.45% of portfolio loans and leases, as of December 31, 2015. The $1.9
million decrease in non-performing loans and leases was comprised of decreases of $1.2 million, $554 thousand and $509
thousand in commercial and industrial loans, residential mortgages, and commercial mortgages, respectively. These
decreases were partially offset by increases of $262 thousand and $128 thousand in non-performing home equity lines and
loans and leases, respectively.
The Provision for the twelve month periods ended December 31, 2016, 2015 and 2014 was $4.3 million, $4.4 million and
$884 thousand, respectively. The Provision recorded during any given period reflects an allocation related to net new loan
volume and the replenishment of Allowance consumed by charge-offs of loans and leases for which the Corporation had
40
not specifically reserved. Net loan charge-offs for the twelve months ended December 31, 2016 totaled $2.7 million as
compared to $3.1 million for the same period in 2015. Total portfolio loans increased by $266.4 million during the twelve
months ended December 31, 2016 as compared to $192.5 million (excluding loans acquired in the CBH Merger) for the
same period in 2015. As of December 31, 2016, the Allowance of $17.5 million represents 0.69% of portfolio loans and
leases, as compared to the Allowance as of December 31, 2015 of $15.9 million, which represented 0.70% of portfolio
loans and leases as of that date.
As of December 31, 2016, the Corporation had other real estate owned (“OREO”) valued at $1.0 million, as compared to
$2.6 million as of December 31, 2015. The decrease was related to the sale, during 2016, of one residential property,
carried at $1.8 million, which resulted in a $76 thousand loss on sale, partially offset by the addition of two residential
properties totaling $355 thousand. In addition, $111 thousand in impairment was recorded on the OREO portfolio based on
updated property appraisals or agreements of sale. The properties comprising the balance as of December 31, 2016 include
seven single-family residential properties. All properties are recorded at their estimated fair values less costs to sell.
As of December 31, 2016, the Corporation had $9.0 million of TDRs, of which $6.4 million were in compliance with the
modified terms for six months or greater, and hence, excluded from non-performing loans and leases. As of December 31,
2015, the Corporation had $6.8 million of TDRs, of which $4.9 million were in compliance with the modified terms.
Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled
principal and interest payments in accordance with the original terms of the loans and leases. Included in impaired loans
and leases are non-accrual loans and leases and TDRs in compliance with modified terms. Purchased credit-impaired loans
are not included in impaired loan and lease totals. As of December 31, 2016, the Corporation had $14.4 million of impaired
loans and leases, as compared to impaired loans and leases of $14.5 million as of December 31, 2015. Refer to Note 5-H in
the Notes to Consolidated Financial Statements for more information regarding the Corporation's impaired loans and leases.
The Corporation continues to be diligent in its credit underwriting process and very proactive with its loan review process,
including engaging the services of an independent outside loan review firm, which helps identify developing credit issues.
These proactive steps include the procurement of additional collateral (preferably outside the current loan structure)
whenever possible and frequent contact with the borrower. Management believes that timely identification of credit issues
and appropriate actions early in the process serve to mitigate overall losses.
41
Non-Performing Assets, TDRs and Related Ratios as of or for the Twelve Months Ended December 31,
(dollars in thousands)
Non-accrual loans and leases
Loans 90 days or more past due and still
accruing
Total non-performing loans and leases
Other real estate owned
Total non-performing assets
Troubled debt restructurings included in non-
performing assets
TDRs in compliance with modified terms
Total TDRs
2016
2015
2014
2013
2012
$
8,363 $
10,244 $
10,096 $
10,530 $
14,040
—
8,363
1,017
9,380 $
—
10,244
2,638
12,882 $
—
10,096
1,147
11,243 $
—
10,530
855
11,385 $
728
14,768
906
15,674
2,632 $
6,395
9,027 $
1,935 $
4,880
6,815 $
4,315 $
4,157
8,472 $
1,699 $
7,277
8,976 $
3,106
8,008
11,114
$
$
$
Allowance for loan and lease losses to non-
performing loans and leases
Non-performing loans and leases to total loans
and leases
Allowance for loan losses to total portfolio loans
209.1%
154.8%
144.5%
147.3%
97.7%
0.33%
0.45%
0.61%
0.68%
1.06%
0.69%
0.27%
0.70%
0.43%
1.03%
0.77%
$ 2,535,425 $ 2,268,988 $ 1,652,257 $ 1,547,185 $ 1,398,456
$ 2,506,376 $ 2,153,542 $ 1,608,248 $ 1,453,555 $ 1,307,140
14,425
$
0.88%
0.50%
1.00%
0.55%
17,486 $
14,586 $
15,515 $
15,857 $
and leases
Non-performing assets to total assets
Period end portfolio loans and leases
Average portfolio loans and leases
Allowance for loan and lease losses
Interest income that would have been recorded
on impaired loans if the loans had been
current in accordance with their original terms
and had been outstanding throughout the
period or since origination
$
1,098 $
1,100 $
533 $
1,074 $
1,417
Interest income on impaired loans included in
net income for the period
$
552 $
513 $
341 $
365 $
507
As of December 31, 2016, the Corporation is not aware of any loan or lease, other than those disclosed in the table above,
for which it has any serious doubt as to the borrower’s ability to pay in accordance with the terms of the loan.
42
Summary of Changes in the Allowance for Loan and Lease Losses
(dollars in thousands)
Balance, January 1
Charge-offs:
Consumer
Commercial and industrial
Real estate
Construction
Leases
Total charge-offs
Recoveries:
Consumer
Commercial and industrial
Real estate
Construction
Leases
Total Recoveries
2016
2015
2014
2013
2012
$
15,857 $
14,586 $
15,515 $
14,425 $
12,753
(173)
(1,298)
(1,008)
—
(808)
(3,287)
23
93
178
64
232
590
(2,697)
4,326
17,486 $
(177)
(1,220)
(1,615)
—
(442)
(3,454)
29
35
160
4
101
329
(3,125)
4,396
15,857 $
(144)
(415)
(1,231)
—
(410)
(2,200)
17
98
47
60
165
387
(1,813)
884
14,586 $
(194)
(781)
(891)
(737)
(376)
(2,979)
10
65
105
24
290
494
(2,485)
3,575
15,515 $
(96)
(458)
(818)
(1,131)
(364)
(2,867)
7
143
79
15
292
536
(2,331)
4,003
14,425
Net charge-offs
Provision for loan and lease losses
Balance, December 31
Ratio of net charge-offs to average portfolio
$
loans outstanding
0.17%
0.15%
0.11%
0.17%
0.18%
Allocation of Allowance for Loan and Lease Losses
The following table sets forth an allocation of the allowance for loan and lease losses by portfolio segment. The specific
allocations in any particular portfolio segment may be changed in the future to reflect then-current conditions. Accordingly,
the Corporation considers the entire allowance to be available to absorb losses in any portfolio segment.
2016
2015
December 31,
2014
2013
2012
%
Loans
to
Total
Loans
%
Loans
to
Total
Loans
%
Loans
to
Total
Loans
%
Loans
to
Total
Loans
%
Loans
to
Total
Loans
$ 6,227 43.8% $ 5,199 42.5 % $ 3,948 41.8% $ 3,797 40.4% $ 3,907 39.1%
1,255 8.2
1,917 16.3
2,233 5.6
1,307 9.2
1,740 17.9
1,324 4.0
1,917 11.0
1,736 19.0
1,367 4.0
2,204 12.3
2,446 19.4
845 3.0
1,857 13.9
2,024 20.6
1,019 1.9
4,637 20.9
5,142 22.9
189 1.3
153 1.0
493 2.3
559 2.2
299 —
— —
$17,486 100.0% $ 15,857 100.0 % $14,586 100.0% $15,515 100.0% $ 14,425 100.0%
5,011 21.2
259 1.1
604 2.6
349 —
4,533 20.3
238 1.1
468 2.8
379 —
5,609 23.1
142 1.0
518 2.3
18 —
(dollars in thousands)
Allowance at end of
period
applicable to:
Commercial mortgage
Home equity lines and
loans
Residential mortgage
Construction
Commercial and
industrial
Consumer
Leases
Unallocated
Total
43
Non-Interest Income
2016 Compared to 2015
Non-interest income for the twelve months ended December 31, 2016 was $54.0 million, a decrease of $1.9 million as
compared to the same period in 2015. The decrease was related to a $1.0 million decrease in gain on sale of available for
sale investment securities, a $319 thousand decrease in dividends on FHLB and FRB stocks and a $204 thousand decrease
in fees for wealth management services. The decrease in gain on sale of available for sale investment securities resulted
from the very limited sales during the twelve months ended December 31, 2016, which resulted in a loss on sale of $77
thousand as compared to the sale of $64.0 million of available for sale investment securities sold during the same period in
2015, which resulted in a gain on sale of $931 thousand. The majority of the investments sold in 2015 had been acquired in
the CBH Merger and were strategically sold to shorten the duration of the portfolio. The $319 thousand decrease in
dividends on FHLB and FRB stocks occurred due to the special dividend paid on FHLB stock in 2015 which was not
repeated in 2016. The $204 thousand decrease in fees for wealth management services was related to the shift in the
composition of the wealth management portfolio, with more of the portfolio being comprised of assets held in lower-
yielding fixed-fee accounts as of December 31, 2016 as compared to December 31, 2015.
2015 Compared to 2014
Non-interest income for the twelve months ended December 31, 2015 was $56.0 million, an increase of $7.6 million as
compared to the same period in 2014. The increase related to $2.6 million in insurance commissions, $1.8 million in other
operating income, $1.3 million in net gain on sale of loans, $767 thousand in dividends on bank stocks and $450 thousand
in gain on sale of available for sale investment securities.
The $2.6 million increase in insurance commissions is related to the acquisitions of PCPB in October 2014 and RJM in
April 2015. The two acquisitions have contributed a valuable source of noninterest income. The $1.8 million increase in
other operating income (detailed in Note 21 of the Notes to Financial Statements) included a $468 thousand increase in
bank owned life insurance (“BOLI”) income related to the $12.1 million of BOLI acquired in the CBH Merger and the $5.0
million of BOLI purchased in July 2015. Other components of other operating income related to loan, deposit and merchant
fees increased as a result of the increased customer volume from the CBH Merger. The increase in gain on sale of loans
resulted from the success of the mortgage banking initiative which began toward the end of 2014. The increase in dividends
on bank stocks (FHLB and FRB) was primarily related to a special dividend received from the FHLB in the first quarter of
2015.
Non-Interest Expense
2016 Compared to 2015
Non-interest expense for the twelve months ended December 31, 2016 was $101.7 million, a decrease of $24.0 million, as
compared to the same period in 2015. The primary driver for the decrease related to the $17.4 million loss on settlement of
the corporate pension plan and the $6.7 million of due diligence, merger-related and merger integration expenses which had
been recorded in the twelve months ended December 31, 2015 but not repeated in 2016. Decreases in several other
noninterest expense categories also occurred as the efficiencies and cost-saves related to the CBH Merger began to be
realized. Partially offsetting these decreases was a $2.8 million increase in salaries and wages related to annual salary
increases, incentive increases and the hiring of several new senior and executive officers during 2016.
2015 Compared to 2014
Non-interest expense for the twelve months ended December 31, 2015 was $125.8 million, an increase of $44.3 million, as
compared to the same period in 2014. The most significant item contributing to the increase in non-interest expense was the
$17.4 million loss on settlement of the pension plan which had been frozen in March 2008. The decision to settle the
pension plan was made in order to eliminate the earnings volatility associated with a defined benefit program. In addition,
due diligence, merger-related and merger integration expenses increased $4.3 million for the twelve months ended
December 31, 2015 as compared to the same period in 2014. The majority of the costs were related to the CBH Merger,
which closed on January 1, 2015 and integration of CBH into the Corporation which was completed during the fourth
quarter of 2015. Also, related to the CBH Merger, a $929 thousand lease termination penalty in connection with the former
CBH headquarters along with the impairment of a favorable lease asset related to the same property were incurred. Many of
the other increases in non-interest expense categories were related to the staff and facilities acquired in the CBH Merger.
These categories include salaries and wages, employee benefits and occupancy and bank premises.
44
Secondary Market Sold-Loan Repurchase Demands
In the course of originating residential mortgage loans and selling those loans in the secondary market, the Corporation
makes various representations and warranties to the purchasers of the mortgage loans. Each residential mortgage loan
originated by the Corporation is evaluated by an automated underwriting application, which verifies the underwriting
criteria and certifies the loan’s eligibility for sale to the secondary market. Any exceptions discovered during this process
are remedied prior to sale. These representations and warranties also apply to underwriting the real estate appraisal opinion
of value for the collateral securing these loans. Under the representations and warranties, failure by the Corporation to
comply with the underwriting and appraisal standards could result in the Corporation’s being required to repurchase the
mortgage loan or to reimburse the investor for losses incurred (make whole requests) if such failure cannot be cured by the
Corporation within the specified period following discovery. As of December 31, 2016, there were no pending or unsettled
loan repurchase demands. No repurchase demands were received during the twelve months ended December 31, 2016.
Income Taxes
Income taxes for the twelve months ended December 31, 2016 were $18.2 million as compared to $9.2 million and $15.0
million for the same periods in 2015 and 2014, respectively. The effective tax rates for the twelve month periods ended
December 31, 2016, 2015 and 2014 were 33.5%, 35.4% and 35.0%, respectively. The decrease in effective tax rate for
2016 as compared to 2015 was largely related to the $565 thousand in excess tax benefit on stock-based compensation,
which is recognized on the income statement by way of the early adoption of ASU 2016-09. In addition, for the twelve
months ended December 31, 2015, there was $300 thousand of non-deductible merger expenses which were not present in
2016. The increase in effective tax rate for 2015 as compared to 2014 was related to increases in state income taxes,
partially offset by increases in tax-free income from BOLI, tax-free loans and municipal investments. For more information
related to income taxes, refer to Note 18 in the Notes to Consolidated Financial Statements.
Balance Sheet Analysis
Asset Changes
Total assets as of December 31, 2016 increased to $3.42 billion from $3.03 billion as of December 31, 2015. The $390.5
million increase was related to the $266.4 million increase in portfolio loans and the $218.0 million increase in investment
securities available for sale. These increases were partially offset by a $92.3 million decrease in cash and cash equivalents.
As of both December 31, 2016 and 2015, the majority of the Corporation’s investment securities were classified as
available for sale. Investments held in trading accounts as of December 31, 2016 and 2015, which totaled $3.9 million and
$4.0 million, respectively, and were comprised of deferred compensation trusts which are invested in marketable securities
whose diversification is at the discretion of the deferred compensation plan participants. In addition, as of December 31,
2016, $2.9 million of investment securities were classified as held to maturity.
45
The following table details the maturity and weighted average yield (3) of the available for sale investment portfolio (2) as of
December 31, 2016:
(dollars in thousands)
U.S. Treasury securities:
Amortized cost
Weighted average yield
Obligations of the U.S. government and
agencies:
Amortized cost
Weighted average yield
State and political subdivisions(3):
Amortized cost
Weighted average yield
Mortgage-related securities(1):
Amortized cost
Weighted average yield
Other investment securities:
Amortized cost
Weighted average yield
Total amortized cost
Weighted average yield
Maturing
From
2018
Through
2021
Maturing
From
2022
Through
2026
Maturing
During
2017
Maturing
After
2026
Total
$ 199,993 $
0.32%
101 $
1.03%
— $
— $
200,094
0.32%
5,010
0.79%
18,331
1.55%
41,691
1.97%
18,079
2.69
83,111
1.96%
8,173
1.06%
21,304
1.44%
4,148
1.77%
—
33,625
1.39%
—
16,535
2.46%
42,509
2.49%
176,441
2.23%
235,485
2.29%
700
1.38%
$ 213,876 $
0.36%
600
2.22%
56,871 $
1.78%
—
—
88,348 $ 194,520 $
2.27%
2.21%
1,300
1.77%
553,615
1.47%
(1) Mortgage-related securities are included in the above table based on their contractual maturity. However, mortgage-
related securities, by design, have scheduled monthly principal payments which are not reflected in this table.
(2) Excluded from the above table is the Corporation’s investment in bond mutual funds with an amortized cost of $15.3
million, which have no stated maturity or constant stated yield.
(3) Weighted average yields on tax-exempt obligations have not been computed on a tax-equivalent basis.
The following table details the amortized cost of the available for sale investment portfolio as of the dates indicated:
(dollars in thousands)
Obligations of the U.S. government and agencies
Obligations of the U.S. Treasury
Obligations of state and political subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Other investments
Total amortized cost
$
$
Amortized Cost as of December 31,
2015
2016
2014
83,111 $
200,094
33,625
185,997
49,488
16,575
568,890 $
101,342 $
101
41,892
157,422
29,756
17,263
347,776 $
66,881
102
28,955
79,498
34,618
17,499
227,553
46
Portfolio Loans and Leases
The table below details the loan portfolio as of the dates indicated:
(dollars in thousands)
Commercial mortgage
Home equity lines & loans
Residential mortgage
Construction
Commercial & industrial
Consumer
Leases
Total portfolio loans and
leases
Loans held for sale
Total
$
2016
1,110,898 $
207,999
413,540
141,964
579,791
25,341
55,892
2015
December 31,
2014
2013
2012
964,259 $
209,473
406,404
90,421
524,515
22,129
51,787
689,528 $
182,082
313,442
66,267
335,645
18,480
46,813
625,341 $
189,571
300,243
46,369
328,459
16,926
40,276
546,358
194,861
288,212
26,908
291,620
17,666
32,831
2,535,425
9,621
2,545,046 $
2,268,988
8,987
2,277,975 $
1,652,257
3,882
1,656,139 $
1,547,185
1,350
1,548,535 $
1,398,456
3,412
1,401,868
$
The following table summarizes the loan maturity distribution and interest rate sensitivity as of December 31, 2016.
Excluded from the table are residential mortgage, home equity lines and loans and consumer loans:
(dollars in thousands)
Loan portfolio maturity:
Commercial and industrial
Construction
Commercial mortgage
Leases
Total
Interest sensitivity on the above loans:
Loans with predetermined rates
Loans with adjustable or floating rates
Total
Maturing
During
2017
Maturing
From 2018
Through
2021
Maturing
After
2021
Total
$
$
$
$
235,267 $
109,213
52,322
3,822
400,624 $
173,019 $
32,751
354,441
51,996
612,207 $
171,505 $
—
704,135
74
875,714 $
579,791
141,964
1,110,898
55,892
1,888,545
115,536 $
285,088
400,624 $
442,744 $
169,463
612,207 $
288,719 $
586,995
875,714 $
846,999
1,041,546
1,888,545
The list below identifies certain key characteristics of the Corporation’s loan and lease portfolio. Refer to the loan and lease
portfolio tables in Note 5 in the Notes to Consolidated Financial Statements and the section of this MD&A under the
heading “Portfolio Loans and Leases” for further details.
• Portfolio Loans and Leases – The Corporation’s $2.54 billion loan and lease portfolio is predominantly based in
the Corporation’s traditional market areas of Chester, Delaware and Montgomery counties in Pennsylvania, New
Castle county in Delaware, and in the greater Philadelphia area, none of which has experienced the real estate
price appreciation and subsequent decline that many other areas of the country have experienced over the last ten
years.
• Concentrations – The Corporation has a significant portion of its portfolio loans (excluding leases) in real estate-
related loans. As of December 31, 2016, loans secured by real estate were $1.87 billion or 73.9% of the total loan
portfolio of $2.54 billion. A predominant percentage of the Corporation’s real estate exposure, both commercial
and residential, is within Pennsylvania. The Corporation 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,
equity in the underlying real estate collateral and a review of a borrower’s global cash flows. The Corporation has
recourse against a substantial portion of the loans in the real estate portfolio.
In addition to loans secured by real estate, commercial and industrial loans comprise 22.9% of the total loan
portfolio as of December 31, 2016.
47
• Construction – The construction portfolio of $142.0 million accounts for 5.6% of the total loan and lease
portfolio at December 31, 2016, an increase of $51.5 million from December 31, 2015. The construction loan
segment of the portfolio, which consists of residential site development loans, commercial construction loans and
loans for construction of individual homes, had no delinquent or nonperforming loans as of both December 31,
2016. Nonperforming construction loans comprised 0.04% of the construction segment of the portfolio as of
December 31, 2015.
• Residential Mortgages – Residential mortgage loans were $413.5 million as of December 31, 2016, an increase
of $7.1 million from December 31, 2015. The residential mortgage segment accounts for 16.3% of the total loan
and lease portfolio as of December 31, 2016. The residential mortgage segment of the portfolio had a
delinquency rate on performing loans, as of December 31, 2016, of 0.32%, as compared to 0.50% as of
December 31, 2015. Nonperforming residential mortgage loans comprised 0.64% of the residential mortgage
segment of the portfolio as of December 31, 2016, as compared to 0.79% as of December 31, 2015. The
Corporation believes it is well protected with its collateral position on this portfolio.
• Commercial Mortgages – Commercial mortgages were $1.11 billion as of December 31, 2016, an increase of
$146.6 million from December 31, 2015. The Corporation has made a concerted effort, over several operating
cycles, to attract strong commercial real estate entrepreneurs in its primary trade area. The commercial mortgage
segment accounts for 43.8% of the total loan and lease portfolio as of December 31, 2016. The commercial
mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2016, of
0.12%, as compared to 0.14% as of December 31, 2015. Nonperforming commercial mortgage loans comprised
0.03% of the commercial mortgage segment of the portfolio as of December 31, 2016, as compared to 0.09% as
of December 31, 2015. The borrowers comprising this segment of the portfolio generally have strong, global cash
flows, which have remained stable in this tough economic environment.
• Commercial and Industrial – Commercial and industrial loans were $579.8 million as of December 31, 2016,
an increase of $55.3 million from December 31, 2015. The commercial and industrial segment accounts for
22.9% of the total loan and lease portfolio as of December 31, 2016. The commercial and industrial segment of
the portfolio had a delinquency rate on performing loans, as of December 31, 2016, of 0.01%, as compared to
0.03% as of December 31, 2015. Nonperforming commercial and industrial loans comprised 0.51% of the
commercial and industrial segment of the portfolio as of December 31, 2016, as compared to 0.79% as of
December 31, 2015. The commercial and industrial segment of the portfolio consists of loans to privately held
institutions, family businesses, non-profit institutions and private banking relationships. While certain of these
loans are collateralized by real estate, others are collateralized by non-real estate business assets, including
accounts receivable and inventory.
• Home Equity Loans and Lines of Credit – Home equity loans and lines of credit were $208.0 million as of
December 31, 2016, a decrease of $1.5 million from December 31, 2015. The home equity loans and lines of
credit segment accounts for 8.2% of the total loan and lease portfolio as of December 31, 2016. The home equity
loans and lines of credit segment of the portfolio had a delinquency rate on performing loans, as of December 31,
2016, of 0.01%, as compared to 0.78% as of December 31, 2015. Nonperforming home equity loans and lines of
credit comprised 1.10% of the home equity loans and lines of credit segment of the portfolio as of December 31,
2016, as compared to 0.97% as of December 31, 2015. The Corporation originates the majority of its home
equity loans and lines of credit through its branch network.
• Consumer loans – Consumer loans were $25.3 million as of December 31, 2016, an increase of $3.2 million
from December 31, 2015. The consumer loan segment accounted for 1.0% of the total loan and lease portfolio as
of December 31, 2016. The consumer loan segment of the portfolio had a delinquency rate on performing loans,
as of December 31, 2016, of 0.06%, as compared to 0.12% as of December 31, 2015. Nonperforming consumer
loans comprised 0.01% of the consumer loan segment of the portfolio as of December 31, 2016, as compared to
0.00% as of December 31, 2015.
• Leasing – Leases totaled $55.9 million as of December 31, 2016, an increase of $4.1 million from December 31,
2015. The lease segment of the portfolio accounted for 2.2% of the total loan and lease portfolio as of December
31, 2016. The lease segment of the portfolio had a delinquency rate on performing leases, as of December 31,
2016, of 0.47%, as compared to 0.96% as of December 31, 2015. Nonperforming leases comprised 0.24% of the
leasing segment of the portfolio as of December 31, 2016, as compared to 0.02% as of December 31, 2015.
48
Goodwill and Other Intangible Assets – Goodwill as of December 31, 2016 was unchanged at $104.8 million from
December 31, 2015. Other intangible assets decreased by $3.5 million from December 31, 2015 to December 31, 2016,
through amortization. For more information regarding goodwill and other intangible assets, see Notes 2 and 3 in the Notes
to Consolidated Financial Statements for additional details.
FHLB Stock - The Corporation’s investment in stock issued by the FHLB as of December 31, 2016 increased by $4.4
million, from December 31, 2015. The Corporation must purchase, or the FHLB must redeem, its stock based on the
Corporation’s borrowings balance with the FHLB.
Mortgage Servicing Rights (“MSRs”) - MSRs increased $440 thousand to $5.6 million as of December 31, 2016 from
$5.1 million as of December 31, 2015. This increase was the result of $1.3 million of MSRs recorded during the twelve
months ended December 31, 2016, reduced by amortization of $750 thousand and impairment of $131 thousand during the
period.
The following table details activity related to mortgage servicing rights for the periods indicated:
(dollars in thousands)
Mortgage originations
Mortgage loans sold:
Servicing retained
Servicing released
Total mortgage loans sold
Percentage of originated mortgage loans sold
Servicing retained %
Servicing released %
Residential mortgage loans serviced for others
Mortgage servicing rights
Gain on sale of mortgage loans
Loans servicing and other fees
Amortization of MSRs
Impairment of MSRs
Liability Changes
For the Twelve Months Ended or as of December 31,
2015
2014
2016
$
$
$
$
$
$
$
$
$
280,059 $
231,049 $
117,257
138,134 $
22,829
160,963 $
57.5%
85.8%
14.2%
631,889 $
5,582 $
2,765 $
1,939 $
750 $
131 $
107,351 $
29,630
136,981 $
59.3 %
78.4 %
21.6 %
601,939 $
5,142 $
2,501 $
2,087 $
590 $
70 $
54,859
783
55,642
47.5%
98.6%
1.4%
590,660
4,765
1,772
1,755
476
56
Total liabilities as of December 31, 2016 increased $375.1 million, to $3.04 billion from December 31, 2015. The increase
was largely related to the $327.0 million increase in deposits between the dates.
Deposits - Deposits of $2.58 billion, as of December 31, 2016, increased $327.0 million from December 31, 2015. The
14.5% increase was comprised of increases of $109.5 million and 217.5 million in noninterest-bearing and interest-bearing
deposits, respectively.
The following table details deposits as of the dates indicated:
$
(dollars in thousands)
Interest-bearing checking
Money market
Savings
Wholesale – non-maturity
Wholesale – time deposits
Time deposits
Interest-bearing deposits
$
Non-interest-bearing deposits
$
Total deposits
2016
2015
As of December 31,
2014
2013
2012
379,424 $
761,657
232,193
74,272
73,037
322,912
1,843,495 $
736,180
2,579,675 $
338,861 $
749,726
187,299
67,717
53,185
229,253
1,626,041 $
626,684
2,252,725 $
277,228 $
566,354
138,992
66,693
73,458
118,400
1,241,125 $
446,903
1,688,028 $
266,787 $
544,310
135,240
42,936
34,640
140,794
1,164,707 $
426,640
1,591,347 $
270,279
559,470
129,091
45,162
12,421
218,586
1,235,009
399,673
1,634,682
49
The following table summarizes the maturities of certificates of deposit of $100,000 or greater at December 31, 2016:
(dollars in thousands)
Three months or less
Three to six months
Six to twelve months
Greater than twelve months
Total
Retail
Wholesale
$
$
20,474 $
64,843
69,648
28,671
183,636 $
26,614
30,950
15,219
—
72,783
For more information regarding deposits, including average amount of deposits and average rate paid, refer to the sections
of this MD&A under the headings “Balance Sheet Analysis” and “Analysis of Interest Rates and Interest Differential.”
Borrowings - Short-term borrowings as of December 31, 2016, which include repurchase agreements, a repurchase
agreement with a correspondent bank, overnight FHLB advances and federal funds from correspondent banks increased
$110.0 million from December 31, 2015. As of December 31, 2016, long-term FHLB advances decreased $65.1 million
from December 31, 2015. See the Liquidity Section of this MD&A under the heading “Liquidity” for further details on the
Corporation’s FHLB available borrowing capacity.
Subordinated Notes – Subordinated notes, as of December 31, 2016, totaled $29.5 million and were comprised of 10-year
4.75% fixed-to-floating notes which were originated in August 2015.
Discussion of Segments
The Corporation has two operating segments: Wealth Management and Banking. These segments are discussed below.
Detailed segment information appears in Note 29 in the Notes to Consolidated Financial Statements.
Wealth Management Segment Activity
The Wealth Management segment reported a pre-tax segment profit (“PTSP”) for the twelve months ended December 31,
2016 of $14.4 million, a $1.4 million, or 8.6%, decrease from the same period in 2015. Fees for wealth management
services for 2016 decreased by $204 thousand from the amount recorded in 2015, while expenses increased by $1.1 million
during the same period. The decrease in fees, year over year, despite the $2.96 billion increase in wealth assets from
December 31, 2015 to December 31, 2016, is indicative of the continuing shift, during 2016, in the composition of the
wealth portfolio. Much of the increase in wealth assets during 2016 was comprised of accounts with flat-fee arrangements,
rather than market-based fees. Revenue from the insurance division, which is reported as part of the Wealth Management
segment, was relatively unchanged for the twelve months ended December 31, 2016 as compared to the same period in
2015.
The Wealth Management segment reported a PTSP for the twelve months ended December 31, 2015 of $15.7 million, a
$289 thousand, or 1.9%, increase from the same period in 2014. Fees for wealth management services for 2015 increased
by $120 thousand from the amount recorded in 2014. The relatively small increase in fees, year over year, despite the
$664.9 million increase in wealth assets from December 31, 2014 to December 31, 2015, was related a shift, during 2015,
in the composition of the wealth portfolio. Much of the increase in wealth assets during 2015 was comprised of accounts
with flat-fee arrangements, rather than market-based fees. The insurance division, which is reported as part of the Wealth
Management segment, showed a $2.5 million increase in revenue for the twelve months ended December 31, 2015 as
compared to the same period in 2014. The increase in insurance revenue was the result of the PCPB and RJM acquisitions
in October 2014 and April 2015, respectively.
Wealth Assets Under Management, Administration, Supervision and Brokerage (“Wealth Assets”)
Wealth Asset accounts are categorized into two groups; the first account group consists predominantly of clients whose
fees are determined based on the market value of the assets held in their accounts (“Market Value” fee basis). The second
account group consists predominantly of clients whose fees are set at fixed amounts (“Fixed Fee” basis), and, as such, are
not affected by market value changes.
50
The following tables detail the composition of Wealth Assets as it relates to the calculation of fees for wealth management
services:
(dollars in thousands)
Fee Basis
(dollars in thousands)
Fee Basis
Market value
Fixed
Market value
Fixed
December 31,
2016
Wealth Assets as of:
December 31,
2015
December 31,
2014
$
$
5,302,463 $
6,025,994
11,328,457 $
4,971,636 $
3,393,169
8,364,805 $
5,256,892
2,443,016
7,699,908
December 31,
2016
Percentage of Wealth Assets as of:
December 31,
2015
December 31,
2014
46.8%
53.2%
100.0%
59.4%
40.6%
100.0%
68.3%
31.7%
100.0%
The following tables detail the composition of fees for wealth management services for the periods indicated:
(dollars in thousands)
Fee Basis
(dollars in thousands)
Fee Basis
Market value
Fixed
Market value
Fixed
Banking Segment Activity
December 31,
2016
For the Twelve Months Ended:
December 31,
2015
December 31,
2014
$
$
28,418 $
8,272
36,690 $
29,219 $
7,675
36,894 $
29,926
6,848
36,774
Percentage of Fees for Wealth Management Services:
December 31,
2015
December 31,
2014
December 31,
2016
77.5%
22.5%
100.0%
79.2%
20.8%
100.0%
81.4%
18.6%
100.0%
Banking segment data as presented in Note 29 in the Notes to Consolidated Financial Statements indicates a PTSP of $39.8
million in 2016, $10.2 million in 2015 and $27.4 million in 2014. See the section of this MD&A under the heading
“Components of Net Income” for a discussion of the Banking Segment.
Capital and Regulatory Capital Ratios
Consolidated shareholders’ equity of the Corporation was $381.1 million, or 11.1% of total assets, as of December 31,
2016, as compared to $365.7 million, or 12.1% of total assets, as of December 31, 2015.
In March 2015, the Corporation filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”). The
Shelf Registration Statement allows the Corporation to raise additional capital through offers and sales of registered
securities consisting of common stock, debt securities, warrants to purchase common stock, stock purchase contracts and
units or units consisting of any combination of the foregoing securities. Using the prospectus in the Shelf Registration
Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more
offerings, such securities in a dollar amount up to $200 million, in the aggregate.
In addition, the Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock
Purchase Plan (the “Plan”), which allows it to issue up to 1,500,000 shares of registered common stock. The Plan allows for
the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year.
An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs,
prevailing market prices of the Corporation’s common stock and general economic and market conditions.
51
For the twelve months ended December 31, 2016, no shares were issued by the Corporation through the Plan. No RFWs
were approved during the twelve months ended December 31, 2016. No other sales of securities were executed under the
Shelf Registration Statement during the twelve months ended December 31, 2016.
Accumulated other comprehensive loss (“AOCL”), as of December 31, 2016 was $2.4 million, an increase of $2.0 million
from December 31, 2015. The primary cause of the increase in AOCL was the increase in unrealized losses on available for
sale investment securities, whose fair values were affected by rising interest rates toward the end of 2016.
As detailed in Note 26-E in the Notes to Consolidated Financial Statements, the capital ratios, as of December 31, 2016, of
the Corporation decreased from their December 31, 2015 levels. The primary cause for this decrease was the $390.5
million increase in total assets between the dates. Conversely, the capital ratios of the Bank have increased from their
December 31, 2015 levels largely as a result of a $15 million downstream of capital from the Corporation during the first
quarter of 2016.
Both the Corporation and the Bank exceeded the required capital levels to be considered “Well Capitalized” by their
respective regulators as of the end of each period presented.
Liquidity
The Corporation has significant sources of liquidity at December 31, 2016. The liquidity position is managed on a daily
basis as part of the daily settlement function and on a monthly basis as part of the asset liability management process. The
Corporation’s primary liquidity is maintained by managing its deposits along with the utilization of borrowings from the
FHLB, purchased federal funds and utilization of other wholesale funding sources. Secondary sources of liquidity include
the sale of 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. Funds obtained through these programs totaled $73.0 million as of December 31, 2016.
As of December 31, 2016, the maximum borrowing capacity with the FHLB was $1.22 billion, with an unused borrowing
availability of $886.0 million. Borrowing availability at the Federal Reserve Discount Window was $117.3 million, and
overnight Fed Funds lines, consisting of lines from seven banks, totaled $79.0 million. On a monthly basis, the
Corporation’s Asset Liability Committee reviews the Corporation’s liquidity needs. This information is reported to the Risk
Management Committee of the Board of Directors on a quarterly basis.
As of December 31, 2016, the Corporation held $17.3 million of FHLB stock as required by the borrowing agreement
between the FHLB and the Corporation.
The Corporation has an agreement with CDC to provide up to $5 million, plus interest, of money market deposits at an
agreed upon rate currently at 0.40%. The Corporation had $538 thousand in balances as of December 31, 2016 under this
program. The Corporation can request an increase in the agreement amount as it deems necessary. In addition, the
Corporation has an agreement with IND to provide up to $50 million, plus interest, of money market and NOW funds at an
agreed upon interest rate equal to the current Fed Funds rate plus 20 basis points. The Corporation had $47.0 million in
balances as of December 31, 2016 under this program.
The Corporation’s available for sale investment portfolio of $567.0 million as of December 31, 2016 was 16.6% of total
assets. Some of these investments were in short-term, high-quality, liquid investments to earn more than the 25 basis points
currently earned on Fed Funds. The Corporation’s policy is to maintain its investment portfolio at a minimum level of 10%
of total assets. The portion of the investment portfolio that is not already pledged against borrowings from the FHLB or
other funding sources, provides the Corporation with the ability to utilize the securities to borrow additional funds through
the FHLB, Federal Reserve or through other repurchase agreements.
The Corporation continually evaluates its borrowing capacity and sources of liquidity. The Corporation believes that it has
sufficient capacity to fund expected 2017 earning asset growth with wholesale sources, along with deposit growth from its
branch system.
52
Off Balance Sheet Risk
The Corporation becomes party to financial instruments in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and standby letters of credit and create off-
balance sheet risk.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the loan agreement.
Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby
letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of
credit is similar to that involved in granting loan facilities to customers.
The following chart presents the off-balance sheet commitments of the Corporation as of December 31, 2016, listed by
dates of funding or payment:
(dollars in millions)
Unfunded loan commitments
Standby letters of credit
Total
Total
Within
1 Year
2 - 3
Years
4 - 5
Years
After
5 Years
$
$
675.4 $
12.7
688.1 $
380.0 $
11.5
391.5 $
119.2 $
0.7
119.9 $
15.5 $
0.2
15.7 $
160.7
0.3
161.0
Estimated fair values of the Corporation’s off-balance sheet instruments are based on fees and rates currently charged to
enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit
standing. Collateral requirements for off-balance sheet items are generally based upon the same standards and policies as
booked loans. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material
difference between the stated amount and the estimated fair value of off-balance sheet instruments.
Contractual Cash Obligations of the Corporation as of December 31, 2016
(dollars in millions)
Deposits without a stated maturity
Wholesale and retail certificates of deposit
Short-term borrowings
FHLB advances and other borrowings
Operating leases
Purchase obligations
Total
Total
Within
1 Year
2 - 3
Years
4 - 5
Years
After
5 Years
395.9
204.2
189.7
31.5
8.1
829.4 $
335.0
204.2
75.0
4.2
2.3
620.7 $
46.4
—
102.2
8.1
2.9
159.6 $
14.5
—
12.5
6.1
2.9
36.0 $
—
—
—
13.1
—
13.1
$
Other Information
Effects of Inflation
Inflation has some impact on the Corporation’s operating costs. Unlike many industrial companies, however, substantially
all of the Corporation’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant
impact on the Corporation’s performance than the general level of inflation. Over short periods of time, interest rates may
not necessarily move in the same direction or in the same magnitude as prices of goods and services.
Effect of Government Monetary Policies
The earnings of the Corporation are and will be affected by domestic economic conditions and the monetary and fiscal
policies of the United States government and its agencies. An important function of the Federal Reserve Board is to
regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market
operations in United States government securities and changes in reserve requirements against member bank deposits.
These instruments are used in varying combinations to influence overall growth and distribution of bank loans,
investments, and deposits, and their use may also affect rates charged on loans or paid for deposits.
53
The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal
Reserve Board have a significant effect on its deposits, loans and investment growth, as well as the rate of interest earned
and paid, and are expected to affect the Corporation’s operations in the future. The effect of such policies and regulations
upon the future business and earnings of the Corporation cannot be predicted.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item 7A is incorporated by reference to information appearing in the MD&A
Section of this Annual Report on Form 10-K, more specifically in the sections entitled “Interest Rate Sensitivity,”
“Summary of Interest Rate Simulation,” and “Gap Analysis.”
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements and related documents are set forth in this Annual Report on
Form 10-K on the following pages:
Page
Report of Independent Registered Public Accounting Firm ........................................................................................... 55
Consolidated Balance Sheets ......................................................................................................................................... 56
Consolidated Statements of Income ............................................................................................................................... 57
Consolidated Statements of Comprehensive Income ..................................................................................................... 58
Consolidated Statements of Cash Flows ........................................................................................................................ 59
Consolidated Statements of Changes in Shareholders’ Equity ....................................................................................... 60
Notes to Consolidated Financial Statements .................................................................................................................. 61
54
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 as of
December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2016. We also have
audited Bryn Mawr Bank Corporation’s internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Bryn Mawr Bank Corporation’s management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion
on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
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 consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Bryn Mawr Bank Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, Bryn Mawr Bank Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control
– Integrated Framework (2013) issued by COSO.
Philadelphia, Pennsylvania
March 10, 2017
(signed) KPMG LLP
55
Consolidated Balance Sheets
(dollars in thousands)
Assets
Cash and due from banks
Interest bearing deposits with banks
Cash and cash equivalents
December 31, December 31,
2016
2015
$
16,559 $
34,206
50,765
18,452
124,615
143,067
Investment securities available for sale, at fair value (amortized cost of $568,890 and
$347,776 as of December 31, 2016 and December 31, 2015 respectively)
566,996
348,966
Investment securities held to maturity, at amortized cost (fair value of $2,818 and $0
as of December 31, 2016 and December 31, 2015, respectively)
Investment securities, trading
Loans held for sale
Portfolio loans and leases, originated
Portfolio loans and leases, acquired
Total portfolio loans and leases
Less: Allowance for originated loan and lease losses
Less: Allowance for acquired loan and lease losses
Total allowance for loans and lease losses
Net portfolio loans and leases
Premises and equipment, net
Accrued interest receivable
Mortgage servicing rights
Bank owned life insurance
Federal Home Loan Bank stock
Goodwill
Intangible assets
Other investments
Other assets
Total assets
Liabilities
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Long-term FHLB advances
Subordinated notes
Accrued interest payable
Other liabilities
Total liabilities
2,879
3,888
9,621
2,240,987
294,438
2,535,425
(17,458 )
(28 )
(17,486 )
2,517,939
41,778
8,533
5,582
39,279
17,305
104,765
20,405
8,627
23,168
3,421,530 $
736,180 $
1,843,495
2,579,675
204,151
189,742
29,532
2,734
34,569
3,040,403
-
3,950
8,987
1,883,869
385,119
2,268,988
(15,857)
-
(15,857)
2,253,131
45,339
7,869
5,142
38,371
12,942
104,765
23,903
9,460
25,105
3,030,997
626,684
1,626,041
2,252,725
94,167
254,863
29,479
1,851
32,201
2,665,286
$
$
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares; issued 21,110,968 and
20,931,416 shares as of December 31, 2016 and December 31, 2015, respectively,
and outstanding of 16,939,715 and 17,071,523 as of December 31, 2016 and
December 31, 2015, respectively
Paid-in capital in excess of par value
Less: Common stock in treasury at cost - 4,171,253 and 3,859,893 shares as of
December 31, 2016 and December 31, 2015, respectively
Accumulated other comprehensive loss, net of tax
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
21,111
232,806
20,931
228,814
(66,950 )
(2,409 )
196,569
381,127
3,421,530 $
(58,144)
(412)
174,522
365,711
3,030,997
$
The accompanying notes are an integral part of the consolidated financial statements.
56
Consolidated Statements of Income
(dollars in thousands, except per share data)
Interest income:
Interest and fees on loans and leases
Interest on cash and cash equivalents
Interest on investment securities:
Taxable
Non-taxable
Dividends
Total interest income
Interest expense:
Interest on deposits
Interest on short-term borrowings
Interest on FHLB advances and other borrowings
Interest on subordinated notes
Total interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest income:
Fees for wealth management services
Insurance commissions
Service charges on deposits
Loan servicing and other fees
Net gain on sale of loans
Net (loss) gain on sale of investment securities available for sale
Net (loss) gain on sale of other real estate owned ("OREO")
Dividends on FHLB and FRB stock
Other operating income
Total non-interest income
Non-interest expenses:
Salaries and wages
Employee benefits
Loss on pension plan settlement
Occupancy and bank premises
Branch lease termination expense
Furniture, fixtures, and equipment
Advertising
Amortization of intangible assets
Impairment of intangible assets
Due diligence, merger-related and merger integration expenses
Professional fees
Pennsylvania bank shares tax
Information technology
Other operating expenses
Total non-interest expenses
Income before income taxes
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
Dividends declared per share
Weighted-average basic shares outstanding
Dilutive shares
Adjusted weighted-average diluted shares
$
$
$
$
Twelve Months Ended December 31,
2015
2016
2014
$
110,536 $
168
102,432 $
409
5,575
497
215
116,991
5,833
93
3,353
1,476
10,755
106,236
4,326
101,910
36,690
3,722
2,791
1,939
3,119
(77)
(76)
1,063
4,868
54,039
47,411
9,548
-
9,611
-
7,520
1,381
3,498
-
-
3,659
1,749
3,661
13,707
101,745
54,204
18,168
36,036 $
2.14 $
2.12 $
0.82 $
5,018
497
186
108,542
4,212
48
3,554
601
8,415
100,127
4,396
95,731
36,894
3,745
2,927
2,087
3,022
931
123
1,382
4,849
55,960
44,575
10,205
17,377
10,305
929
6,841
2,102
3,827
387
6,670
3,353
1,253
3,443
14,498
125,765
25,926
9,172
16,754 $
0.96 $
0.94 $
0.78 $
78,541
193
3,596
399
177
82,906
2,898
17
3,163
-
6,078
76,828
884
75,944
36,774
1,099
2,578
1,755
1,772
471
175
615
3,083
48,322
37,113
7,340
-
7,305
-
4,508
1,504
2,659
-
2,373
3,017
1,256
2,771
11,572
81,418
42,848
15,005
27,843
2.05
2.01
0.74
The accompanying notes are an integral part of the consolidated financial statements.
57
16,859,623
168,499
17,028,122
17,488,325
267,996
17,756,321
13,566,239
294,801
13,861,040
Consolidated Statements of Comprehensive Income
(dollars in thousands)
Twelve Months Ended December 31,
2015
2016
2014
Net income
$
36,036 $
16,754 $
27,843
Other comprehensive income (loss):
Net change in unrealized (losses) gains on investment securities
available for sale:
Net unrealized (losses) gains arising during the period, net of
tax (benefit) expense of $(1,053), $(618) and $1,335,
respectively
Less: reclassification adjustment for net losses (gains) on sales
realized in net income, net of tax benefit (expense) of $27,
$(326), and $(165), respectively
Unrealized investment (losses) gains, net of tax (benefit)
expense of $(1,079), $(292) and $1,170, respectively
Net change in fair value of derivative used for cash flow hedge:
Net unrealized losses arising during the period, net of tax
benefit of $0, $(228) and $(413), respectively
Less: realized loss on cash flow hedge reclassified to earnings,
net of tax benefit of $0, $214, and $0, respectively
Change in fair value of hedging instruments, net of tax expense
(benefit) of $0, $14 and $(413), respectively
Net change in unfunded pension liability:
Change in unfunded pension liability related to unrealized loss,
prior service cost and transition obligation, net of tax
expense (benefit) of $5, $264 and $(4,063), respectively
Change in unfunded pension liability related to settlement of
pension plan, net of tax expense of $0, $6,082 and $0
Total change in unfunded pension liability, net of tax expense
(benefit) of $5, $6,346 and $(4,063), respectively
Total other comprehensive income (loss)
(1,955)
(1,147 )
1,867
50
(605 )
(306 )
(2,005)
(542 )
2,173
-
-
-
8
-
(422 )
(768 )
397
-
25
(768 )
514
(7,544 )
11,295
-
8
(1,997)
11,809
11,292
(7,544 )
(6,139 )
The accompanying notes are an integral part of the consolidated financial statements.
58
Consolidated Statements of Cash Flows
(dollars in thousands)
Operating activities:
Net Income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses
Depreciation of fixed assets
Net amortization of investment premiums and discounts
Net loss on settlement of pension plan
Net loss (gain) on sale of investment securities available for sale
Net gain on sale of loans
Stock based compensation cost
Amortization and net impairment of mortgage servicing rights
Net accretion of fair value adjustments
Amortization of intangible assets
Impairment of intangible assets
Impairment of other real estate owned ("OREO")
Net loss (gain) on sale of OREO
Net increase in cash surrender value of bank owned life insurance ("BOLI")
Other, net
Loans originated for resale
Proceeds from loans sold
Provision for deferred income taxes
Excess tax benefit from stock-based compensation
Change in income taxes payable/receivable
Change in accrued interest receivable
Change in accrued interest payable
Net cash provided by operating activities
Investing activities:
Purchases of investment securities available for sale
Purchases of investment securities held to maturity
Proceeds from maturity and paydowns of investment securities available for sale
Proceeds from maturity and paydowns of investment securities held to maturity
Proceeds from sale of investment securities available for sale
Net change in FHLB stock
Proceeds from calls of investment securities
Proceeds from sales of other investments
Net change in other investments
Net portfolio loan and lease originations
Purchases of premises and equipment
Purchases of BOLI
Acquisitions, net of cash acquired
Proceeds from sale of OREO
Net cash used in investing activities
Financing activities:
Change in deposits
Change in short-term borrowings
Dividends paid
Change in long-term FHLB advances and other borrowings
Payment of contingent consideration for business combinations
Net proceeds from issuance of subordinated notes
Excess tax benefit from stock-based compensation
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based
compensation
Net (purchase of) proceeds from sale of treasury stock for deferred compensation plans
Net purchase of treasury stock through publicly announced plans
Proceeds from issuance of common stock
Proceeds from exercise of stock options
Net cash provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Cash paid during the year for:
Income taxes
Interest
Non-cash information:
Change in other comprehensive loss
Change in deferred tax due to change in comprehensive income
Transfer of loans to other real estate owned and repossessed assets
Issuance of shares and options for acquisitions
Acquisition of noncash assets and liabilities:
Assets acquired
Liabilities assumed
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
59
2016
Twelve Months Ended December 31,
2015
2014
$
36,036 $
16,754 $
4,326
5,630
3,200
-
77
(3,119)
1,713
880
(3,776)
3,498
-
94
76
(908)
(899)
(161,597)
162,762
1,676
-
4,340
(664)
883
54,228
(350,669)
(2,928)
65,176
34
276
(4,363)
60,840
664
264
(266,331)
(2,207)
-
-
1,806
(497,438)
327,169
109,995
(13,961)
(65,000)
(627)
-
-
(745)
(133)
(7,971)
-
2,181
350,908
(92,302)
143,067
50,765 $
12,261 $
9,872 $
(1,997) $
(1,074) $
546 $
- $
- $
- $
4,396
4,925
3,280
17,377
(931 )
(3,022 )
1,441
661
(4,942 )
3,827
387
90
(123 )
(782 )
1,049
(141,578 )
138,964
(2,834 )
(783 )
(529 )
(215 )
516
37,928
(176,034 )
-
66,209
-
64,851
3,562
104,240
-
(4,184 )
(194,066 )
(7,611 )
(5,000 )
16,129
1,215
(130,689 )
83,784
(38,128 )
(13,837 )
(24,883 )
(542 )
29,456
783
-
(128 )
(26,418 )
20
6,452
16,559
(76,202 )
219,269
143,067 $
11,703 $
7,604 $
11,292 $
6,068 $
2,283 $
123,734 $
727,908 $
620,303 $
27,843
884
3,486
2,299
-
(471 )
(1,772 )
1,256
532
(2,757 )
2,659
-
-
(175 )
(315 )
2,822
(58,173 )
56,866
2,350
(831 )
808
168
199
37,678
(45,199 )
-
40,801
-
24,394
131
37,750
342
(789 )
(105,918 )
(5,455 )
-
(4,125 )
1,646
(56,422 )
96,704
12,933
(10,189 )
54,623
-
-
831
79
(947 )
72
2,836
156,942
138,198
81,071
219,269
11,831
5,879
(9,446 )
(3,306 )
1,763
-
10,005
5,880
Consolidated Statements of Changes in Shareholders' Equity
(dollars in thousands, except per share information)
For the Years Ended December 31, 2014, 2015 and 2016
Shares of
Common
Stock Issued
Common
Stock
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders'
Equity
Balance December 31, 2013
16,596,869 $ 16,597 $ 95,673 $
(30,764) $
(5,565) $ 153,957 $
229,898
Net income
Dividends declared, $0.74 per share
Other comprehensive loss, net of tax benefit of
$3,307
Stock based compensation
Tax benefit from stock-based compensation
Retirement of treasury stock
Net purchase of treasury stock from stock award
and deferred compensation plans..
Issuance costs - S-4 filing
Common stock issued:
Dividend Reinvestment and Stock Purchase
Plan
Share-based awards and options exercises
-
-
-
-
-
(3,512)
-
-
-
-
-
-
-
(3)
-
-
-
-
-
1,256
831
(32 )
-
-
-
-
-
35
45
(147 )
(913)
-
2,517
146,261
2
146
70
2,790
-
-
-
-
27,843
(10,208)
27,843
(10,208)
(6,139)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,139)
1,256
831
-
(868)
(147)
-
72
2,936
Balance December 31, 2014
16,742,135 $ 16,742 $ 100,486 $
(31,642) $
(11,704) $ 171,592 $
245,474
Net income
Dividends declared, $0.78 per share
Other comprehensive income, net of tax expense
of $6,080
Stock based compensation
Excess tax benefit from stock-based
compensation
Retirement of treasury stock
Cancellation of forfeited restricted stock awards
Net purchase of treasury stock
Shares issued in acquisitions
Options assumed in acquisitions
Common stock issued:
-
-
-
-
-
-
-
-
-
(4)
(27)
-
-
-
-
1,441
783
(40 )
27
3,878 117,513
2,343
-
-
-
-
-
-
44
-
(26,546)
-
-
-
(4,418)
(27,375)
-
3,878,304
-
Dividend Reinvestment and Stock Purchase
Plan
Share-based awards and options exercises
663
342,107
1
341
19
6,242
-
-
-
-
16,754
(13,824)
11,292
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,754
(13,824)
11,292
1,441
783
-
-
(26,546)
121,391
2,343
20
6,583
Balance December 31, 2015
20,931,416 $ 20,931 $ 228,814 $
(58,144) $
(412) $ 174,522 $
365,711
Net income
Tax provision-to-return adjustment related to
excess tax benefit on stock-based
compensation
Dividends declared, $0.82 per share
Other comprehensive income, net of tax benefit
of $1,075
Stock based compensation
Retirement of treasury stock
Net purchase of treasury stock through publicly
announced plans
Net purchase of treasury stock from stock award
and deferred compensation plans
Common stock issued:
Common stock issued through share-based
awards and options exercises
Balance December 31, 2016
-
-
-
-
-
36,036
36,036
-
-
-
-
(4,320)
-
-
-
-
-
-
(4)
-
-
197
-
-
1,713
(39 )
-
-
-
-
43
-
(7,971)
-
(878)
-
-
-
(13,989)
197
(13,989)
(1,997)
-
-
-
-
-
-
-
-
-
(1,997)
1,713
-
(7,971)
(878)
183,872
2,121
21,110,968 $ 21,111 $ 232,806 $
184
-
(66,950) $
-
-
(2,409) $ 196,569 $
2,305
381,127
The accompanying notes are an integral part of the consolidated financial statements.
60
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
A. Nature of Business
The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the
Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”) was formed and on January 2, 1987,
the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn
Mawr, Pennsylvania, located in the western suburbs of Philadelphia. The Corporation and its subsidiaries provide wealth
management, commercial and community banking, residential mortgage lending, insurance and business banking services
to its customers through 25 full service branches, eight limited-hour retirement community offices, one limited-service
branch, five wealth offices and a full-service insurance agency located throughout Montgomery, Delaware, Chester,
Dauphin and Philadelphia counties in Pennsylvania and New Castle county in Delaware. The common stock of the
Corporation trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.
On January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal Bancshares
of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value
of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge with and into the Corporation
and RBA will merge with and into the Bank. The Acquisition, which is expected to add approximately $602 million in
loans and $630 million in deposits (based on unaudited December 31, 2016 financial information), strengthens the
Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on deposits, ranks it as
the eighth largest community bank headquartered in Pennsylvania. The Acquisition, which will expand the Corporation's
distribution network by providing entry into the new markets of New Jersey and Berks County, Pennsylvania, and a new
physical presence in Philadelphia County, Pennsylvania is expected to close during the third quarter of 2017.
On April 1, 2015, the acquisition of Robert J. McAllister Agency, Inc. (“RJM”), an insurance brokerage headquartered in
Rosemont, Pennsylvania, was completed. Consideration paid totaled $1.0 million, of which $500 thousand was paid at
closing, $85 thousand of the first annual payment not to exceed $100 thousand was paid during the second quarter of 2016
and four remaining contingent cash payments, not to exceed $100 thousand each, will be payable on each of March 31,
2017, March 31, 2018, March 31, 2019, and March 31, 2020, subject to the attainment of certain revenue targets during the
related periods. The acquisition enhanced the Corporation’s ability to offer comprehensive insurance solutions to both
individual and business clients.
On January 1, 2015, the merger of Continental Bank Holdings, Inc. (“CBH”) with and into the Corporation (the “CBH
Merger”), and the merger of Continental Bank with and into the Bank, were completed. Consideration paid totaled $125.1
million, comprised of 3,878,383 shares (which included fractional shares paid in cash) of the Corporation’s common stock,
the assumption of options to purchase Corporation common stock valued at $2.3 million and $1.3 million for the cash-out
of certain warrants. The CBH Merger initially added $424.7 million of loans, $181.8 million of investments, $481.7 million
of deposits and ten new branches. The acquisition of CBH enabled the Corporation to expand its footprint into a significant
portion of Montgomery County, Pennsylvania.
On October 1, 2014, the acquisition of Powers Craft Parker and Beard, Inc. (“PCPB”), an insurance brokerage
headquartered in Rosemont, Pennsylvania, was completed. The consideration paid by the Corporation was $7.0 million, of
which $5.4 million was paid at closing and the first two of three contingent payments, of $542 thousand each, were paid
during the fourth quarters of 2015 and 2016. The remaining $542 thousand represents one contingent payment, not to
exceed $542 thousand. The payment is subject to the attainment of certain revenue targets during the applicable period. The
addition enabled the Corporation to offer a full range of insurance products to both individual and business clients.
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 to U.S. generally accepted accounting principles (“GAAP”).
61
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 inter-company transactions and balances have been eliminated.
In preparing the Consolidated Financial Statements, the Corporation is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the
balance sheets, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from these estimates.
Although our current estimates contemplate current conditions and how we expect them to change in the future, it is
reasonably possible that in 2017, actual conditions could be worse than anticipated in those estimates, which could
materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such
as the allowance for loan and lease losses and lending related commitments, goodwill and intangible assets, pension and
post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other
effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and
establishment of allowances for loan losses and lending-related commitments as well as increased pension and post-
retirement expense.
C. Cash and Cash Equivalents
Cash and cash equivalents include cash, interest-bearing and non-interest bearing amounts due from banks, and federal
funds sold. Cash balances required to meet regulatory reserve requirements of the Federal Reserve Board amounted to
$10.4 million and $11.7 million at December 31, 2016 and December 31, 2015, respectively.
D. Investment Securities
Investment securities which are held for indefinite periods of time, which the Corporation intends to use as part of its
asset/liability strategy, or which may be sold in response to changes in credit quality of the issuer, interest rates, changes in
prepayment risk, increases in capital requirements, or other similar factors, are classified as available for sale and are
carried at fair value. Net unrealized gains and losses for such securities, net of tax, are required to be recognized as a
separate component of shareholders’ equity and excluded from determination of net income. Gains or losses on disposition
are based on the net proceeds and cost of the securities sold, adjusted for the amortization of premiums and accretion of
discounts, using the specific identification method.
The Corporation follows ASC 370-10-65-1 “Recognition and Presentation of Other-Than-Temporary Impairments” that
provides guidance related to accounting for recognition of other-than-temporary impairment for debt securities and expands
disclosure requirements for other-than-temporarily impaired debt and equity securities. Companies are required to record
other-than-temporary impairment charges through earnings if they have the intent to sell, or will more likely than not be
required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition, companies are required
to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent
or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s
cash flows and its amortized cost basis. Non-credit-related write-downs to fair value must be recorded as decreases to
accumulated other comprehensive income as long as the Corporation has no intent or it is more likely than not that the
Corporation would not be required to sell an impaired security before a recovery of its amortized cost basis. The
Corporation did not have any other-than-temporary impairments for 2016, 2015 or 2014.
Investments for which the Corporation has the intent and ability to hold until maturity are classified as held-to-maturity and
are carried at their amortized cost on the balance sheet. No adjustment for market value fluctuations are recorded related to
the held to maturity portfolio.
Investment securities held in trading accounts consist solely of deferred compensation trust accounts which are invested in
listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants. Investment
securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income.
E. Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the
aggregate. Net unrealized temporary losses, if any, are recognized through a valuation allowance by charges to income.
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F. Portfolio Loans and Leases
The Corporation originates construction, commercial and industrial, commercial mortgage, residential mortgage, home
equity and consumer loans to customers primarily in southeastern Pennsylvania as well as small-ticket equipment leases to
customers nationwide. Although the Corporation has a diversified loan and lease portfolio, its debtors’ ability to honor their
contracts is substantially dependent upon the real estate and general economic conditions of the region.
Loans and leases that the Corporation has the intention and ability to hold for the foreseeable future or until maturity or
pay-off, generally are reported at their outstanding principal balance adjusted for charge-offs, the allowance for loan and
lease losses and any deferred fees or costs on originated loans and leases. Interest income is accrued on the unpaid principal
balance.
Loan and lease origination fees and loan and lease origination costs are deferred and recognized as an adjustment to the
related yield using the interest method.
The accrual of interest on loans and leases is generally discontinued at the time the loan is 90 days delinquent unless the
credit is well secured and in the process of collection. Loans and leases are placed on nonaccrual status or charged-off at an
earlier date if collection of principal or interest is considered doubtful. All interest accrued, but not collected for loans that
are placed on nonaccrual status or charged-off, is charged against interest income. All interest accrued, but not collected, on
leases that are placed on nonaccrual status is not charged against interest income until the lease becomes 120 days
delinquent, at which point it is charged off. The interest received on these nonaccrual loans and leases is applied to reduce
the carrying value of loans and leases. Loans and leases are returned to accrual status when all the principal and interest
amounts contractually due are brought current, remain current for at least six months and future payments are reasonably
assured. Once a loan returns to accrual status, any interest payments collected during the nonaccrual period which had been
applied to the principal balance are reversed and recognized as interest income over the remaining term of the loan.
Certain loans which have reached maturity and have been approved for extension or renewal, but for which all required
documents have not been fully executed as of the reporting date, are classified as Administratively Delinquent and are not
considered to be delinquent. These loans are reported as current in all disclosures.
Loans acquired in mergers are recorded at their fair values. The difference between the recorded fair value and the principal
value is accreted to interest income over the contractual lives of the loans in accordance with ASC 310-20. Certain acquired
loans which were deemed to be credit impaired at acquisition are accounted for in accordance with ASC 310-30, as
discussed below, in subsection H of this footnote.
G. Allowance for Loan and Lease Losses
The allowance for loan and lease losses (the “Allowance”) is established through a provision for loan and lease losses (the
“Provision”) charged as an expense. The principal balances of loans and leases are charged against the Allowance when the
Corporation believes that the principal is uncollectible. The Allowance is maintained at a level that the Corporation
believes is sufficient to absorb estimated potential credit losses.
The Corporation’s determination of the adequacy of the Allowance is based on guidance provided in ASC 450 –
Contingencies and ASC 310 - Receivables, and involves the periodic evaluations of the loan and lease portfolio and other
relevant factors. However, this evaluation is inherently subjective as it requires significant estimates by the Corporation.
Consideration is given to a variety of factors in establishing these estimates. Quantitative factors in the form of historical
net charge-off rates by portfolio segment are considered. In connection with these quantitative factors, management
establishes what it deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 2016,
the Corporation utilized a five-year LBP, which it believes adequately captures the trends in charge-offs. In addition,
management develops an estimate of a loss emergence period (“LEP”) for each segment of the loan portfolio. The LEP
estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan. As of
December 31, 2016, the Corporation utilized a two-year LEP for its commercial loan segments and a one-year LEP for its
consumer loan segments based on analyses of actual charge-offs tracked back in time to the triggering event for the
eventual loss. In addition, various qualitative factors are considered, including the specific terms and conditions of loans,
changes in underwriting standards, delinquency statistics, industry concentrations and overall exposure of a single
customer. In addition, consideration is given to the adequacy of collateral, the dependence on collateral, and the results of
internal loan reviews, including a borrower’s financial strengths, their expected cash flows, and their access to additional
funds.
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As part of the process of calculating the Allowance for the different segments of the loan and lease portfolio, the
Corporation considers certain credit quality indicators. For the commercial mortgage, construction and commercial and
industrial loan segments, periodic reviews of the individual loans are performed by both in-house staff as well as external
third-party loan review specialists. The result of these reviews is reflected in the risk grade assigned to each loan. For the
consumer segments of the loan portfolio, the indicator of credit quality is reflected by the performance/non-performance
status of a loan.
The evaluation process also considers the impact of competition, current and expected economic conditions, national and
international events, the regulatory and legislative environment and inherent risks in the loan and lease portfolio. All of
these factors may be susceptible to significant change. To the extent actual outcomes differ from the Corporation’s
estimates, an additional Provision may be required that might adversely affect the Corporation’s results of operations in
future periods. In addition, various regulatory agencies, as an integral part of their examination processes, periodically
review the adequacy of the Allowance. Such agencies may require the Corporation to record additions to the Allowance
based on their judgment of information available to them at the time of their examination.
H. Impaired Loans and Leases
A loan or lease is considered impaired when, based on current information, it is probable that the Corporation will be
unable to collect the contractually scheduled payments of principal or interest. When assessing impairment, the Corporation
considers various factors, which include payment status, realizable value of collateral and the probability of collecting
scheduled principal and interest payments when due. Loans and leases that experience insignificant payment delays and
payment shortfalls generally are not classified as impaired.
The Corporation determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons
for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest
owed.
For loans that indicate possible signs of impairment, which in most cases is based on the performance/non-performance
status of the loan, an impairment analysis is conducted based on guidance provided by ASC 310-10. Impairment is
measured by (i) the fair value of the collateral, if the loan is collateral-dependent, (ii) the present value of expected future
cash flows discounted at the loan’s contractual effective interest rate, or (iii), less frequently, the loan’s obtainable market
price.
In addition to originating loans, the Corporation occasionally acquires loans through mergers or loan purchase transactions.
Some of these acquired loans may exhibit deteriorated credit quality that has occurred since origination and, as such, the
Corporation may not expect to collect all contractual payments. Accounting for these purchased credit-impaired (“PCI”)
loans is done in accordance with ASC 310-30. The loans are recorded at fair value, reflecting the present value of the
amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing
and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral-dependent, with the
timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. On a regular
basis, at least quarterly, an assessment is made on PCI loans to determine if there has been any improvement or
deterioration of the expected cash flows. If there has been improvement, an adjustment is made to increase the recognition
of interest on the PCI loan, as the estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in
the expected cash flows of a PCI loan, a Provision is recorded in connection with the loan.
I. Troubled Debt Restructurings (“TDR”s)
A TDR occurs when a creditor, for economic or legal reasons related to a borrower’s financial difficulties, modifies the
original terms of a loan or lease or grants a concession to the borrower that it would not otherwise have granted. A
concession may include an extension of repayment terms, a reduction in the interest rate or the forgiveness of principal
and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a concession, the
Corporation will make the necessary disclosures related to the TDR. In certain cases, a modification or concession may be
made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not
considered a TDR.
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J. Other Real Estate Owned (“OREO”)
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 on the balance sheet as
part of other assets, at the lower of cost or fair value less cost to sell, adjusted periodically based on current appraisals.
Costs relating to the development or improvement of assets, as well as the costs required to obtain legal title to the
property, are capitalized, while costs related to holding the property are charged to expense as incurred.
K. Other Investments and Equity Stocks Without a Readily Determinable Fair Value
Other investments include Community Reinvestment Act (“CRA”) investments and equity stocks without a readily
determinable fair value. The Corporation’s investments in equity stocks include those issued by the Federal Home Loan
Bank of Pittsburgh (“FHLB”), the Federal Reserve Bank (“FRB”) and Atlantic Central Bankers Bank. The Corporation is
required to hold FHLB stock as a condition of its borrowing funds from the FHLB. As of December 31, 2016, the carrying
value of the Corporation’s FHLB stock was $17.3 million. In addition, the Corporation is required to hold FRB stock based
on the Corporation’s capital. As of December 31, 2016, the carrying value of the Corporation’s FRB stock was $6.9
million. Ownership of FHLB and FRB stock is restricted and there is no market for these securities. For further information
on the FHLB stock, see Note 10 – “Short-Term Borrowings and Long-Term FHLB Advances”.
L. Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. Depreciation and predetermined rent are recorded
using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the
expected lease term or the estimated useful lives, whichever is shorter.
M. Pension and Postretirement Benefit Plan
As of December 31, 2016, the Corporation had two non-qualified defined-benefit supplemental executive retirement plans
and a postretirement benefit plan as discussed in Note 16 – “Pension and Postretirement Benefit Plans”. Net pension
expense related to the defined-benefit consists of service cost, interest cost, return on plan assets, amortization of prior
service cost, amortization of transition obligations and amortization of net actuarial gains and losses. Prior to December 31,
2015, the Corporation had a qualified pension plan which was settled on December 31, 2015. As it relates to the costs
associated with the post-retirement benefit plan, the costs are recognized as they are incurred.
N. Bank Owned Life Insurance (“BOLI”)
BOLI is recorded at its cash surrender value. Income from BOLI is tax-exempt and included as a component of non-interest
income.
O. Derivative Financial Instruments
The Corporation recognizes all derivative financial instruments on its balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If a derivative has qualified as a hedge, depending on the nature of
the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings immediately.
To determine fair value, the Corporation uses valuations obtained from a third party which utilizes a pricing model that
incorporates assumptions about market conditions and risks that are current as of the reporting date. Management reviews,
annually, the inputs utilized by its independent third-party valuation organization.
The Corporation may use interest-rate swap agreements to modify the interest rate characteristics from variable to fixed or
fixed to variable in order to reduce the impact of interest rate changes on future net interest income. If present, the
Corporation accounts for its interest-rate swap contracts in cash flow hedging relationships by establishing and
documenting the effectiveness of the instrument in offsetting the change in cash flows of assets or liabilities that are being
hedged. To determine effectiveness, the Corporation performs an analysis to identify if changes in fair value or cash flow
of the derivative correlate to the equivalent changes in the forecasted interest receipts or payments related to a specified
hedged item. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The change in fair
value of the ineffective part of the instrument would need to be charged to the Statement of Income, potentially causing
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material fluctuations in reported earnings in the period of the change relative to comparable periods. In a fair value hedge,
the fair value of the interest rate swap agreements and changes in the fair value of the hedged items are recorded in the
Corporation’s consolidated balance sheets with the corresponding gain or loss being recognized in current earnings. The
difference between changes in the fair values of interest rate swap agreements and the hedged items represents hedge
ineffectiveness and is recorded in net interest income in the Statement of Income. The Corporation performs an assessment,
both at the inception of the hedge and quarterly thereafter, to determine whether these derivatives are highly effective in
offsetting changes in the value of the hedged items. In December 2012, the Corporation entered into a $15 million forward-
starting interest rate swap in order to hedge the cash flows of a $15 million floating-rate FHLB borrowing. On November
30, 2015, the start date of the swap, the Corporation elected to terminate the swap.
P. Accounting for Stock-Based Compensation
Stock-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an
expense over the vesting period.
All share-based payments, including grants of stock options, restricted stock awards and performance-based stock awards,
are recognized as compensation expense in the statement of income at their fair value. The fair value of stock option grants
is determined using the Black-Scholes pricing model which considers the expected life of the options, the volatility of stock
price, risk-free interest rate and annual dividend yield. The fair value of the restricted stock awards and performance-based
awards whose performance is measured based on an internally produced metric is based on their closing price on the grant
date, while the fair value of the performance-based stock awards which use an external measure, such as total stockholder
return, is based on their grant-date fair value adjusted for the likelihood of attaining certain pre-determined performance
goals and is calculated by utilizing a Monte Carlo Simulation model.
Q. Earnings per Common Share
Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders
by the weighted-average common shares outstanding during the period. Diluted earnings per common share takes into
account the potential dilution that would occur if in-the-money stock options were exercised and converted into common
shares and restricted stock awards and performance-based stock awards were vested. Proceeds assumed to have been
received on options exercises 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.
R. Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
The Corporation recognizes the benefit of a tax position only after determining that the Corporation would more-likely-
than-not sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the
amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being
realized upon settlement with the relevant tax authority. The Corporation applies these criteria to tax positions for which
the statute of limitations remains open.
S. Revenue Recognition
With the exception of nonaccrual loans and leases, the Corporation recognizes all sources of income on the accrual method.
Additional information relating to wealth management fee revenue recognition follows:
The Corporation earns wealth management fee revenue from a variety of sources including fees from trust administration
and other related fiduciary services, custody, investment management and advisory services, employee benefit account and
IRA administration, estate settlement, tax service fees, shareholder service fees and brokerage. These fees are generally
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based on asset values and fluctuate with the market. Some revenue is not directly tied to asset value but is based on a flat
fee for services provided. For many of our revenue sources, amounts are not received in the same accounting period in
which they are earned. However, each source of wealth management fees is recorded on the accrual method of accounting.
The most significant portion of the Corporation’s wealth management fees is derived from trust administration and other
related services, custody, investment management and advisory services, and employee benefit account and IRA
administration. These fees are generally billed monthly, in arrears, based on the market value of assets at the end of the
previous billing period. A smaller number of customers are billed in a similar manner, but on a quarterly or annual basis
and some revenues are not based on market values.
The balance of the Corporation’s wealth management fees includes estate settlement fees and tax service fees, which are
recorded when the related service is performed and asset management and brokerage fees on non-depository investment
products, which are received one month in arrears, based on settled transactions, but are accrued in the month the
settlement occurs.
Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet
collected.
Insurance revenue is primarily related to commissions earned on insurance policies and is recognized over the related
policy coverage period.
T. Mortgage Servicing
A portion of the residential mortgage loans originated by the Corporation is sold to third parties; however the Corporation
often retains the servicing rights related to these loans. A fee, usually based on a percentage of the outstanding principal
balance of the loan, is received in return for these services. Gains on the sale of these loans are based on the specific
identification method.
An intangible asset, referred to as mortgage servicing rights (“MSR”s) is recognized when a loan’s servicing rights are
retained upon sale of a loan. These MSRs amortize to non-interest expense in proportion to, and over the period of, the
estimated future net servicing life of the underlying loans.
MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost.
Impairment is determined by stratifying the MSRs by predominant characteristics, such as interest rate and terms. Fair
value is determined based upon discounted cash flows using market-based assumptions. Impairment is recognized on the
income statement to the extent the fair value is less than the capitalized amount for the stratum. A valuation allowance is
utilized to record temporary impairment in MSRs. Temporary impairment is defined as impairment that is not deemed
permanent. Permanent impairment is recorded as a reduction of the MSR and is not reversed.
U. Statement of Cash Flows
The Corporation’s statement of cash flows details operating, investing and financing activities during the reported periods.
V. Goodwill and Intangible Assets
The Corporation accounts for goodwill and other intangible assets in accordance with ASC 350, “Intangibles – Goodwill
and Other.” The goodwill and intangible assets as of December 31, 2016, other than MSRs in Note 1-T above, are related
to the acquisitions of Lau Associates, The Private Wealth Management Group of the Hershey Trust Company (“PWMG”),
Davidson Trust Company (“DTC”), PCPB and RJM which are components of the Wealth Management segment, and First
Keystone Financial, Inc. (“FKF”), First Bank of Delaware (“FBD”) and CBH, which are components of the Banking
segment. The amount of goodwill initially recorded is based on the fair value of the acquired entity at the time of
acquisition. Goodwill impairment tests are performed annually, as of October 31, or when events occur or circumstances
change that would more likely than not reduce the fair value of the acquisition or investment. Prior to October 31, 2016, the
Corporation had performed the goodwill impairment testing as of December 31. During 2016, the Corporation made a
voluntary change in the method of applying an accounting principle related to the timing of the annual goodwill impairment
assessment from December 31st to October 31st. Management made this decision based on the time intensive nature of the
goodwill impairment assessment. Management does not consider this change in impairment testing date to be a material
change in application of an accounting principle. Goodwill impairment is tested on a reporting unit level. The Corporation
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currently has three reporting units: Banking, Wealth Management and Insurance. As of December 31, 2016, the Insurance
reporting unit did not meet the quantitative thresholds for separate disclosure as an operating segment and is therefore
reported as a component of the Wealth Management segment, based on its internal reporting structure. While the Insurance
reporting unit did not meet the threshold for reporting as a separate operating segment, for goodwill and intangible testing,
the Insurance segment was tested for impairment. An operating segment is a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by
the enterprise’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess
its performance, and for which discrete financial information is available
The Corporation’s impairment testing methodology is consistent with the methodology prescribed in ASC 350. Other
intangible assets include core deposit intangibles, which were acquired in the FKF merger, the FBD transaction, and the
CBH Merger, customer relationships, trade name and non-competition agreements acquired in connection with the
acquisitions of DTC, PWMG, Lau Associates, PCPB and RJM. The customer relationships, non-competition agreement
and core deposit intangibles are amortized over the estimated useful lives of the assets. The trade name intangibles have
indefinite lives and are evaluated for impairment annually.
W. Reclassifications
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
X. Recent Accounting Pronouncements
The following recent accounting pronouncements are divided into pronouncements which have been adopted by the
Corporation and those which are not yet effective and have been evaluated or are currently being evaluated by the
Corporation as of December 31, 2016.
Adopted Pronouncements:
FASB ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”
Issued on August 15, 2014, ASU 2014-15 describes how an entity should assess its ability to meet obligations and sets
disclosure requirements for how this information should be disclosed in the financial statements. The standard provides
accounting guidance that will be used with existing auditing standards. The new standard applies to all entities for the first
annual period ending after December 15, 2016, and interim periods thereafter. As of December 31, 2016, the adoption of
FASB ASU 2014-15 has not had an impact on our consolidated financial statements.
FASB ASU 2016-09 (Topic 718), “Improvements to Employee Share-Based Payment Accounting”
In March 2016, the FASB issued ASU No. 2016-09, which changes several aspects of the accounting for share-based
payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits and
Deficiencies, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. The standard is
effective for public business entities in annual and interim periods in fiscal years beginning after December 15, 2016. Early
adoption is permitted if the entire standard is adopted. If an entity early adopts the standard in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Corporation
early-adopted ASU 2016-09 during the three months ended September 30, 2016. As a result of the adoption, the
Corporation recognized a $565 thousand tax benefit in the Consolidated Statements of Income for the twelve months ended
December 31, 2016. The impact of the income tax benefit or expense related to ASU 2016-09 is treated as a discrete item in
the calculation of the year-to-date income tax expense. Also, in accordance with the provisions of ASU 2016-09, the
Corporation presents excess tax benefits as an operating activity in the Consolidated Statement of Cash Flows using a
retrospective transition method. Adoption of all other changes did not have an impact on our consolidated financial
statements.
Pronouncements Not Yet Effective:
FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers”
Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services
to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts.
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the
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Effective Date. This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued
ASU 2016- 08, “Principal versus Agent Considerations (Reporting Gross versus Net),” which amends the principal versus
agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before
they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20, Technical Corrections and
Improvements to Topic 606, Revenue from Contracts with Customers and 2016-12, Narrow-Scope Improvements and
Practical Expedients, both of which provide additional clarification of certain provisions in Topic 606. These Accounting
Standards Codification (“ASC”) updates are effective for annual reporting periods beginning after December 15, 2017, but
early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The
standard permits the use of either the retrospective or retrospectively with the cumulative effect transition method. The
Corporation is currently in the process of evaluating all revenue streams, accounting policies, practices and reporting to
identify and understand any impact on the Corporation’s Consolidated Financial Statements. Our preliminary evaluation
suggests that adoption of this guidance is not expected to have a material effect on our Consolidated Financial Statements.
FASB ASU 2017-04 (Topic 350), “Intangibles – Goodwill and Others”
Issued in January 2017, ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating
Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value
of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods
beginning after December 15, 2019 including interim periods within those periods. The Corporation is evaluating the effect
that ASU 2017-04 will have on its consolidated financial statements and related disclosures.
FASB ASU 2017-01 (Topic 805), “Business Combinations”
Issued in January 2017, ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and
consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017 including interim periods
within those periods. The Corporation is evaluating the effect that ASU 2017-01 will have on its consolidated financial
statements and related disclosures.
FASB ASU 2016-15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”
Issued in August 2016, ASU 2016-15 provides guidance on eight specific cash flow issues and their disclosure in the
consolidated statements of cash flows. The issues addressed include debt prepayment, settlement of zero-coupon debt,
contingent consideration in business combinations, proceeds from settlement of insurance claims, proceeds from settlement
of BOLI, distributions received from equity method investees, beneficial interests in securitization transactions, and
separately identifiable cash flows and application of the Predominance principle. 2016-15 is effective for the annual and
interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The Corporation is
currently evaluating the impact of this guidance and does not anticipate a material impact on its consolidated financial
statements.
FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”
Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for
many financial assets. The new current expected credit loss model will require companies to immediately recognize an
estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the
standard. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities.
ASU 2016-13 is effective for the annual and interim periods in fiscal years beginning after December 15, 2018, with early
adoption permitted. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial
statements and related disclosures.
FASB ASU 2016-02 (Topic 842), “Leases”
Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance,
lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also
simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and
lease liabilities. ASU 2016-02 is effective for the first interim period within annual periods beginning after December 15,
2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective transition
69
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the
financial statements. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial
statements and related disclosures.
FASB ASU 2016-01 (Subtopic 825-10), “Financial Instruments – Overall, Recognition and Measurement of
Financial Assets and Financial Liabilities”
Issued in January 2016, ASU 2016-01 provides that equity investments will be measured at fair value with changes in fair
value recognized in net income. When fair value is not readily determinable an entity may elect to measure the equity
investment at cost, minus impairment, plus or minus any change in the investment’s observable price. For financial
liabilities that are measured at fair value, the amendment requires an entity to present separately, in other comprehensive
income, any change in fair value resulting from a change in instrument-specific credit risk. ASU 2016-01 will be effective
for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is
permitted. Entities may apply this guidance on a prospective or retrospective basis. The Corporation is evaluating the effect
that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
Note 2 - Business Combinations
Robert J. McAllister Agency, Inc.
The acquisition of RJM, an insurance brokerage headquartered in Rosemont, Pennsylvania, was completed on April 1,
2015. The consideration paid totaled $1.0 million, of which $500 thousand was paid at closing, $85 thousand of the first
annual payment not to exceed $100 thousand was paid during the second quarter of 2016 and four remaining contingent
cash payments, not to exceed $100 thousand each, will be payable on each of March 31, 2017, March 31, 2018, March 31,
2019, and March 31, 2020, subject to the attainment of certain revenue targets during the related periods. The $15 thousand
difference between the first maximum payment of $100 thousand and the $85 thousand that was actually paid was
recognized as other non-interest income. The acquisition will enhance the Corporation’s ability to offer comprehensive
insurance solutions to both individual and business clients.
In connection with the RJM acquisition, the following table details the consideration paid, the initial estimated fair value of
identifiable assets acquired and liabilities assumed as of the date of acquisition and subsequent adjustments, during the
measurement period, to the fair value of the assets acquired, liabilities assumed and the resulting goodwill recorded:
(dollars in thousands)
Consideration paid:
Cash paid at closing
Contingent payment liability
Value of consideration
Assets acquired:
Cash operating accounts
Intangible assets – trade name
Intangible assets – customer relationships
Intangible assets – non-competition agreements
Other assets
Total assets
Liabilities assumed:
Deferred tax liability
Other liabilities
Total liabilities
Net assets acquired
Goodwill resulting from acquisition of RJM
Original
Estimates
Adjustments to
Estimates
Final
Valuation
$
500 $
500
1,000
20
129
424
257
4
834
336
46
382
452
548 $
$
70
— $
—
—
—
(129)
—
—
—
(129)
(45)
—
(45)
(84)
84 $
500
500
1,000
20
—
424
257
4
705
291
46
337
368
632
An adjustment was made which eliminated the value initially placed on the trade name (and its associated deferred tax
liability), as the entity was immediately merged into PCPB.
As of December 31, 2015, the estimates of fair values of the assets acquired and liabilities assumed in the acquisition of
RJM were finalized.
Continental Bank Holdings, Inc.
On January 1, 2015, the previously announced merger of CBH with and into the Corporation, and the merger of
Continental Bank with and into the Bank, as contemplated by the Agreement and Plan of Merger, by and between CBH and
the Corporation, dated as of May 5, 2014 (as amended by the Amendment to Agreement and Plan of Merger, dated as of
October 23, 2014, the “Agreement”), were completed. In accordance with the Agreement, the aggregate share consideration
paid to CBH shareholders consisted of 3,878,383 shares (which included fractional shares paid in cash) of the
Corporation’s common stock. Shareholders of CBH received 0.45 shares of Corporation common stock for each share of
CBH common stock they owned as of the effective date of the CBH Merger. Holders of options to purchase shares of CBH
common stock received options to purchase shares of Corporation common stock, converted at the same ratio of 0.45. In
addition, $1.3 million was paid to certain warrant holders to cash-out certain warrants. In accordance with the acquisition
method of accounting, assets acquired and liabilities assumed were preliminarily adjusted to their fair values as of the date
of the CBH Merger. The excess of consideration paid above the fair value of net assets acquired was recorded as goodwill.
This goodwill is not amortizable nor is it deductible for income tax purposes.
In connection with the CBH Merger, the following table details the consideration paid, the initial estimated fair value of
identifiable assets acquired and liabilities assumed as of the date of acquisition and the subsequent adjustments, during the
measurement period, to the fair value of the assets acquired, liabilities assumed and the resulting goodwill recorded:
Original
Estimates
Adjustments to
Estimates
Final
Valuation
(dollars in thousands)
Consideration paid:
Common shares issued (3,878,304)
Cash in lieu of fractional shares
Cash-out of certain warrants
Fair value of options assumed
Value of consideration
Assets acquired:
Cash and due from banks
Investment securities available for sale
Loans*
Premises and equipment
Deferred income taxes
Bank-owned life insurance
Core deposit intangible
Favorable lease asset
Other assets
Total assets
Liabilities assumed:
Deposits
FHLB and other long-term borrowings
Short-term borrowings
Unfavorable lease liability
Other liabilities
Total liabilities
$
121,391 $
2
1,323
2,343
125,059
17,934
181,838
426,601
9,037
6,288
12,054
4,191
792
18,085
676,820
481,674
19,726
108,609
2,884
4,706
617,599
— $
—
—
—
—
—
—
(1,864)
—
1,396
—
—
(68)
(111)
(647)
—
—
—
—
1,867
1,867
121,391
2
1,323
2,343
125,059
17,934
181,838
424,737
9,037
7,684
12,054
4,191
724
17,974
676,173
481,674
19,726
108,609
2,884
6,573
619,466
56,707
68,352
Net assets acquired
59,221
(2,514)
Goodwill resulting from the CBH Merger
$
65,838 $
2,514 $
* includes $507 thousand of loans held for sale
71
For the twelve months ended December 31, 2015, adjustments to the fair value of the assets acquired and liabilities
assumed were related to circumstances that existed prior to the CBH Merger date, but that were not known to the
Corporation. The adjustments included reductions in the fair value of certain loans, unrecorded liabilities of CBH, and an
immaterial adjustment to the calculation of a favorable lease asset, which reduced its value, along with the associated
deferred tax items.
As of December 31, 2015, the estimates of fair values of the assets acquired and liabilities assumed in the CBH Merger
were finalized.
Powers Craft Parker and Beard, Inc.
The acquisition of PCPB, an insurance brokerage headquartered in Rosemont, Pennsylvania, was completed on October 1,
2014. The consideration paid by the Corporation was $7.0 million, of which $5.4 million was paid at closing and the first of
three contingent payments, of $542 thousand, was paid during the fourth quarter of 2015. The remaining $1.1 million
consists of two contingent payments, with each payment not to exceed $542 thousand. Each payment is subject to the
attainment of certain revenue targets during the applicable periods. The measurement periods for the two remaining
contingent payments are the twelve month periods ending September 30, 2016 and 2017. The acquisition of PCPB has
enabled the Corporation to offer a comprehensive line of insurance solutions to both individual and business clients.
In connection with the PCPB acquisition, the consideration paid and the fair value of identifiable assets acquired and
liabilities assumed as of the date of acquisition are summarized in the following table:
$
(dollars in thousands)
Consideration paid:
Cash paid at closing
Contingent payment disbursed
Contingent payment liability
Value of consideration
Assets acquired:
Cash operating accounts
Other investments
Premises and equipment
Intangible assets – customer relationships
Intangible assets – non-competition agreements
Intangible assets – trade name
Other assets
Total assets
Liabilities assumed:
Deferred tax liability
Other liabilities
Total liabilities
Net assets acquired
Goodwill resulting from acquisition of PCPB
$
As of December 31, 2014, the Corporation had finalized its fair value estimates related to the acquisition of PCPB.
Pro Forma Income Statements (unaudited)
5,399
542
1,083
7,024
1,274
302
100
3,280
1,580
955
850
8,341
2,437
1,818
4,255
4,086
2,938
The following pro forma income statements for the twelve months ended December 31, 2014, 2015 and 2016 present the
pro forma results of operations of the combined institution (CBH and the Corporation) as if the merger occurred on January
1, 2014, January 1, 2015 and January 1, 2016, respectively. The pro forma income statement adjustments are limited to the
effects of fair value mark amortization and accretion and intangible asset amortization. No cost savings or additional
merger expenses have been included in the pro forma results of operations for the twelve month period ended December
72
31, 2014. Due to the immaterial contribution to net income of the PCPB and RJM acquisitions, which occurred during the
three year period shown in the table, the pro forma effects of the PCPC acquisition and the RJM acquisition are excluded.
(dollars in thousands)
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Per share data*:
Weighted-average basic shares outstanding
Dilutive shares
Adjusted weighted-average diluted shares
Basic earnings per common share
Diluted earnings per common share
Twelve Months Ended
December 31,
2015
2016
2014
106,236 $
4,326
101,910
54,039
101,745
54,204
18,168
36,036 $
100,127 $
4,396
95,731
55,960
125,765
25,926
9,172
16,754 $
100,609
2,041
98,568
51,836
100,011
50,393
17,673
32,720
16,859,623
168,499
17,028,122
2.14 $
2.12 $
17,488,325
267,996
17,756,321
0.96 $
0.94 $
17,444,543
373,384
17,817,927
1.88
1.84
$
$
$
$
* Assumes that the shares of CBH common stock outstanding as of December 31, 2014 were outstanding for the full twelve
month periods ended December 31, 2013 and 2014, and therefore equal the weighted average shares of common stock
outstanding for the twelve months periods ended December 31, 2013 and 2014. The merger conversion of 8,618,629 shares
of CBH common stock equals 3,878,304 shares of Corporation common stock (8,618,629 times 0.45, minus 79 fractional
shares paid in cash).
Due Diligence, Merger-Related and Merger Integration Expenses
Due diligence, merger-related and merger integration expenses include consultant costs, investment banker fees, contract
breakage fees, retention bonuses for severed employees, salary and wages for redundant staffing involved in the integration
of the institutions and bonus accruals for members of the merger integration team. The following table details the costs
identified and classified as due diligence, merger-related and merger integration costs for the periods indicated:
(dollars in thousands)
Advertising
Employee benefits
Furniture, fixtures and equipment
Information technology
Professional fees
Salaries and wages
Other
$
Total due diligence and merger-related expenses
$
Note 3 - Goodwill & Other Intangible Assets
Twelve Months Ended December 31,
2014
2015
2016
— $
—
—
—
—
—
—
— $
162 $
258
159
1,168
2,471
1,868
584
6,670 $
10
23
9
44
1,340
346
601
2,373
The Corporation completed an annual impairment test for goodwill and other intangibles as of December 31, 2015 and
October 31, 2016. During 2016, the Corporation made a voluntary change in the method of applying an accounting
principle related to the timing of the annual goodwill impairment assessment from December 31st to October 31st.
Management made this decision based on the time intensive nature of the goodwill impairment assessment. Management
does not consider this change in impairment testing date to be a material change in application of an accounting principle.
Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that would
suggest possible impairment, in which case it would be tested as of the date of the triggering event. There was no goodwill
impairment and no material impairment to identifiable intangible assets recorded during 2015 or 2016. There can be no
assurance that future impairment assessments or tests will not result in a charge to earnings.
73
The Corporation’s goodwill and intangible assets related to the acquisitions of Lau Associates in July 2008, FKF in July
2010, PWMG in May 2011, DTC in May 2012, FBD in November 2012, PCPB in October 2014, CBH in January 2015 and
RJM in April 2015 for the years ended December 31, 2016 and 2015 are as follows:
(dollars in thousands)
Goodwill – Wealth reporting unit
Goodwill – Banking reporting unit
Goodwill – Insurance reporting unit
Total
Core deposit intangible
Customer relationships
Non-compete agreements
Trade name
Favorable lease asset
Total
Grand total
(dollars in thousands)
Goodwill – Wealth reporting unit
Goodwill – Banking reporting unit
Goodwill – Insurance reporting unit
Total
Core deposit intangible
Customer relationships
Non-compete agreements
Trade name
Favorable lease asset
Total
Grand total
Note 4 - Investment Securities
Beginning
Balance
12/31/15
Additions/
Adjustments Amortization
$
20,412 $
80,783
3,570
$ 104,765 $
$
$
4,272 $
14,384
2,932
2,165
150
23,903 $
— $
—
—
— $
—
—
—
—
—
—
Ending
Balance
12/31/16
20,412
— $
80,783
—
—
3,570
— $ 104,765
Initial
Amortization
Period
Indefinite
Indefinite
Indefinite
(825) $
(1,328)
(1,298)
—
(47)
(3,498) $
3,447
10 years
13,056 10 to 20 years
1,634 5 to 10 years
2,165
Indefinite
103 17 to 75 months
20,405
$ 128,668 $
—
(3,498) $ 125,170
Beginning
Balance
12/31/14
Additions/
Adjustments
Amortization/
Impairment
$
$
$
$
20,412 $
12,431
2,938
35,781 $
1,066 $
15,562
3,728
2,165
—
22,521 $
— $
68,352
632
68,984 $
4,191 $
424
257
—
724
5,596 $
Ending
Balance
12/31/15
20,412
— $
80,783
—
—
3,570
— $ 104,765
Amortization
Period
Indefinite
Indefinite
Indefinite
(985) $
(1,602)
(1,053)
—
(574)
(4,214) $
10 years
4,272
14,384 10 to 20 years
2,932 5 to 10 years
2,165
Indefinite
150 17 to 75 months
23,903
$
58,302 $
74,580 $
(4,214) $ 128,668
The amortized cost and fair value of investments, which were classified as available for sale, are as follows:
As of December 31, 2016
(dollars in thousands)
U.S. Treasury securities
Obligations of the U.S. government and agencies
Obligations of state and political subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Other investments
Total
74
Amortized
Cost
$ 200,094 $
83,111
33,625
185,997
49,488
16,575
$ 568,890 $
Gross
Unrealized
Gains
Gross
Unrealized
Losses
3 $
167
26
1,260
108
105
1,669 $
Fair Value
200,097
82,198
33,530
185,951
48,694
16,526
566,996
— $
(1,080)
(121)
(1,306)
(902)
(154)
(3,563) $
As of December 31, 2015
(dollars in thousands)
U.S. Treasury securities
Obligations of the U.S. government and agencies
Obligations of state and political subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Other investments
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
101 $
101,342
41,892
157,422
29,756
17,263
$ 347,776 $
— $
470
123
1,482
166
38
2,279 $
Fair Value
100
101,495
41,966
158,689
29,799
16,917
348,966
(1) $
(317)
(49)
(215)
(123)
(384)
(1,089) $
The following table shows the amount of available for sale investment securities that were in an unrealized loss position at
December 31, 2016:
(dollars in thousands)
Obligations of the U.S.
Less than 12
Months
12 Months
or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
government and agencies
$
62,211 $
(1,080) $
— $
— $
62,211 $
(1,080)
Obligations of state and political
subdivisions
Mortgage-backed securities
Collateralized mortgage
obligations
Other investments
Total
24,482
101,433
(121)
(1,306)
—
—
—
—
24,482
101,433
(121)
(1,306)
35,959
2,203
226,288 $
(902)
(93)
(3,502) $
—
11,895
11,895 $
$
35,959
—
(61)
14,098
(61) $ 238,183 $
(902)
(154)
(3,563)
The following table shows the amount of available for sale investment securities that were in an unrealized loss position at
December 31, 2015:
(dollars in thousands)
U.S. Treasury securities
Obligations of the U.S.
government and agencies
Obligations of state and political
subdivisions
Mortgage-backed securities
Collateralized mortgage
obligations
Other investments
Total
Less than 12
Months
12 Months
or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
100 $
(1) $
— $
— $
100 $
(1)
49,759
(317)
—
—
49,759
(317)
18,725
55,763
6,407
3,945
134,699 $
$
(46)
(215)
(85)
(238)
(902) $
2,016
—
2,436
11,810
16,262 $
(3)
—
20,741
55,763
(49)
(215)
8,843
(38)
15,755
(146)
(187) $ 150,961 $
(123)
(384)
(1,089)
Management evaluates the Corporation’s investment securities that are in an unrealized loss position in order to determine
if the decline in fair value is other than temporary. The investment portfolio includes debt securities issued by U.S.
government agencies, U.S. government-sponsored agencies, state and local municipalities and other issuers. All fixed
income investment securities in the Corporation’s investment portfolio are rated as investment-grade or higher. Factors
considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value
has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above
are temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the
issuers or collateral. Management does not believe that these unrealized losses are other-than-temporary. The Corporation
does not have the intent to sell these securities prior to their maturity or the recovery of their cost bases and believes that it
is more likely, than not, that it will not have to sell these securities prior to their maturity or the recovery of their cost bases.
75
At December 31, 2016, securities having a fair value of $119.4 million were specifically pledged as collateral for public
funds, trust deposits, the FRB discount window program, FHLB borrowings and other purposes. The FHLB has a blanket
lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the
FHLB.
The amortized cost and fair value of available for sale investment and mortgage-related securities available for sale as of
December 31, 2016 and 2015, by contractual maturity, are shown below. Expected maturities will differ from contractual
maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(dollars in thousands)
Investment securities*:
Due in one year or less
Due after one year through five years...
Due after five years through ten years
Due after ten years
Subtotal
Mortgage-related securities
Total
December 31, 2016
Amortized
Cost
Fair
Value
$
$
213,876 $
40,335
45,840
18,079
318,130
235,485
553,615 $
213,885
40,270
44,914
18,055
317,124
234,644
551,768
*Included in the investment portfolio, but not in the table above, are mutual funds with an amortized cost and fair value, as
of December 31, 2016, of $15.3 million and $15.2 million, respectively, which have no stated maturity.
(dollars in thousands)
Investment securities*:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Subtotal
Mortgage-related securities
Total
December 31, 2015
Amortized
Cost
Fair
Value
$
$
9,570 $
61,368
53,193
20,904
145,035
187,178
332,213 $
9,574
61,467
53,070
21,141
145,252
188,488
333,740
* Included in the investment portfolio, but not in the table above, are mutual funds with an amortized cost and fair value, as
of December 31, 2015, of $15.6 million and $15.2 million, respectively, which have no stated maturity.
Proceeds from the sale of available for sale investment securities totaled $276 thousand, $64.9 million and $24.4 million
for the twelve months ended December 31, 2016, 2015 and 2014, respectively. Net loss on sale of available for sale
investment securities for the twelve months ended December 31, 2016 totaled $77 thousand. Net gain on sale of available
for sale investment securities for the twelve months ended December 31, 2015 and 2014 totaled $931 thousand and $471
thousand, respectively.
The amortized cost and fair value of investment securities held to maturity as of December 31, 2016 are as follows:
As of December 31, 2016
(dollars in thousands)
Mortgage-backed securities
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
$
2,879 $
2,879 $
— $
— $
76
Fair Value
2,818
2,818
(61) $
(61) $
The following table shows the amount of held to maturity securities that were in an unrealized loss position at December
31, 2015:
(dollars in thousands)
Mortgage-backed securities
Total
Less than 12
Months
12 Months
or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
$
2,818 $
2,818 $
(61) $
(61) $
— $
— $
— $
— $
2,818 $
2,818 $
(61)
(61)
The amortized cost and fair value of held to maturity investment securities as of December 31, 2016, by contractual
maturity, are shown below:
(dollars in thousands)
Mortgage-related securities1
Total
December 31, 2016
Amortized
Cost
Fair
Value
$
2,879
2,879 $
2,818
2,818
1 Expected maturities of mortgage-related securities may differ from contractual maturities as borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties.
As of December 31, 2015, there were no investments held to maturity.
As of December 31, 2016 and December 31, 2015, the Corporation’s investment securities held in trading accounts totaled
$3.9 million and $4.0 million, respectively, and consist solely of deferred compensation trust accounts which are invested
in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants. Investment
securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income.
Note 5 - Loans and Leases
The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in mergers
and acquisitions. These mergers and acquisitions include the January 2015 acquisition of CBH, the November 2012
transaction with First Bank of Delaware and the July 2010 acquisition of First Keystone Financial, Inc. Many of the tables
in this footnote are presented for all loans as well as supplemental tables for originated and acquired loans.
A. The table below details all portfolio loans and leases as of the dates indicated:
Loans held for sale
Real estate loans:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Total real estate loans
Commercial and industrial
Consumer
Leases
Total portfolio loans and leases
Total loans and leases
Loans with fixed rates
Loans with adjustable or floating rates
Total loans and leases
Net deferred loan origination fees included in the above loan table
77
December 31,
2016
December 31,
2015
$
$
$
$
$
$
9,621 $
8,987
1,110,898 $
207,999
413,540
141,964
1,874,401
579,791
25,341
55,892
2,535,425
2,545,046 $
1,130,172 $
1,414,874
2,545,046 $
(735 ) $
964,259
209,473
406,404
90,421
1,670,557
524,515
22,129
51,787
2,268,988
2,277,975
1,103,622
1,174,353
2,277,975
(70)
The table below details the Corporation’s originated portfolio loans and leases as of the dates indicated:
Loans held for sale
Real estate loans:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Total real estate loans
Commercial and industrial
Consumer
Leases
Total portfolio loans and leases
Total loans and leases
Loans with fixed rates
Loans with adjustable or floating rates
Total originated loans and leases
Net deferred loan origination fees included in the above loan table
December 31,
2016
December 31,
2015
$
$
$
$
$
9,621 $
8,987
946,879 $
178,450
342,268
141,964
1,609,561
550,334
25,200
55,892
2,240,987
2,250,608 $
992,917 $
1,257,691
2,250,608 $
(735 )
772,571
171,189
316,487
87,155
1,347,402
462,746
21,934
51,787
1,883,869
1,892,856
932,575
960,281
1,892,856
(70)
The table below details the Corporation’s acquired portfolio loans as of the dates indicated:
Real estate loans:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Total real estate loans
Commercial and industrial
Consumer
Total portfolio loans and leases
Total loans and leases
Loans with fixed rates
Loans with adjustable or floating rates
Total acquired loans and leases
B. Components of the net investment in leases are detailed as follows:
(dollars in thousands)
Minimum lease payments receivable
Unearned lease income
Initial direct costs and deferred fees
Total
December 31,
2016
December 31,
2015
$
$
$
$
164,019 $
29,549
71,272
—
264,840
29,457
141
294,438
294,438 $
137,255 $
157,183
294,438 $
191,688
38,284
89,917
3,266
323,155
61,769
195
385,119
385,119
171,047
214,072
385,119
December 31,
2016
December 31,
2015
$
$
62,379 $
(8,608)
2,121
55,892 $
58,422
(8,919)
2,284
51,787
78
C. Non-Performing Loans and Leases(1)
The following table details all non-performing portfolio loans and leases as of the dates indicated:
(dollars in thousands)
Non-accrual loans and leases:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Total
December 31,
2016
December 31,
2015
$
$
320 $
2,289
2,658
—
2,957
2
137
8,363 $
829
2,027
3,212
34
4,133
—
9
10,244
(1) Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are
performing, are excluded from this table, with the exception of $344 thousand and $661 thousand of purchased credit-
impaired loans as of December 31, 2016 and December 31, 2015, respectively, which became non-performing
subsequent to acquisition.
The following table details non-performing originated portfolio loans and leases as of the dates indicated:
(dollars in thousands)
Non-accrual originated loans and leases:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Total
December 31,
2016
December 31,
2015
$
$
265 $
2,169
1,654
—
941
2
137
5,168 $
279
1,788
1,964
34
3,044
—
9
7,118
The following table details non-performing acquired portfolio loans(1) as of the dates indicated:
(dollars in thousands)
Non-accrual acquired loans and leases:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Commercial and industrial
Total
December 31,
2016
December 31,
2015
$
$
55 $
120
1,004
2,016
3,195 $
550
239
1,248
1,089
3,126
(1) Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are
performing, are excluded from this table, with the exception of $344 thousand and $661 thousand of purchased credit-
impaired loans as of December 31, 2016 and December 31, 2015, respectively, which became non-performing
subsequent to acquisition.
79
D. Purchased Credit-Impaired Loans
The outstanding principal balance and related carrying amount of credit-impaired loans, for which the Corporation applies
ASC 310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, to account for the interest earned, as of
the dates indicated, are as follows:
(dollars in thousands)
Outstanding principal balance
Carrying amount(1)
December 31,
2016
December 31,
2015
$
$
18,091 $
12,432 $
24,879
16,846
(1) Includes $368 thousand and $699 thousand of purchased credit-impaired loans as of December 31, 2016 and
December 31, 2015, respectively, for which the Corporation could not estimate the timing or amount of expected
cash flows to be collected at acquisition, and for which no accretable yield is recognized. Additionally, the table
above includes $344 thousand and $661 thousand of purchased credit-impaired loans as of December 31, 2016
and December 31, 2015, respectively, which became non-performing subsequent to acquisition, which are
disclosed in Note 5C, above, and which also have no accretable yield.
The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the
Corporation applies ASC 310-30, for the twelve months ended December 31, 2016:
(dollars in thousands)
Balance, December 31, 2015
Accretion
Reclassifications from nonaccretable difference
Additions/adjustments
Disposals
Balance, December 31, 2016
E. Age Analysis of Past Due Loans and Leases
Accretable
Discount
6,115
(1,858)
182
68
(1,274)
3,233
$
$
The following tables present an aging of all portfolio loans and leases as of the dates indicated:
Accruing Loans and Leases
(dollars in thousands)
As of December 31, 2016
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
30 – 59
Days
Past Due
60 – 89
Days
Past Due
Over 89
Days
Past Due
Total
Past
Due
Current*
Total
Accruing
Loans and
Leases
Nonaccrual
Loans and
Leases
Total
Loans
and
Leases
$
$
666 $
11
823
—
36
10
177
1,723 $
722 $
—
490
—
—
5
86
1,303 $
— $
—
—
—
—
—
—
— $
1,388 $ 1,109,190 $ 1,110,578 $
11 205,699 205,710
1,313 409,569 410,882
— 141,964 141,964
36 576,798 576,834
25,339
15
25,324
55,755
263
55,492
3,026 $ 2,524,036 $ 2,527,062 $
320 $ 1,110,898
2,289 207,999
2,658 413,540
— 141,964
2,957 579,791
25,341
55,892
8,363 $ 2,535,425
2
137
80
(dollars in thousands)
As of December 31, 2015
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Accruing Loans and Leases
30 – 59
Days
Past Due
60 – 89
Days
Past Due
Over 89
Days
Past Due
Total
Past
Due
Current*
Total
Accruing
Loans and
Leases
Nonaccrual
Loans and
Leases
Total
Loans
and
Leases
$
$
1,126 $
1,596
1,923
—
99
20
375
5,139 $
211 $
15
74
—
39
—
123
462 $
— $
—
—
—
—
—
—
— $
1,337 $ 962,093 $ 963,430 $
1,611 205,835 207,446
1,997 401,195 403,192
—
90,387
90,387
138 520,244 520,382
22,129
20
22,109
51,778
498
51,280
5,601 $ 2,253,143 $ 2,258,744 $
34
829 $ 964,259
2,027 209,473
3,212 406,404
90,421
4,133 524,515
22,129
51,787
10,244 $ 2,268,988
—
9
*included as “current” are $15.3 million and $10.5 million of loans and leases as of December 31, 2016 and 2015,
respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has
been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting
date. The Corporation does not consider these loans to be delinquent.
The following tables present an aging of originated portfolio loans and leases as of the dates indicated:
Accruing Loans and Leases
(dollars in thousands)
As of December 31, 2016
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
30 – 59
Days
Past
Due
$ — $
11
773
—
—
10
177
971 $
$
60 – 89
Days
Past
Due
Current*
Total
Past
Due
Total
Accruing
Loans and
Leases
Over 89
Days
Past
Due
722 $ 945,892 $ 946,614 $
722 $ — $
11 176,270 176,281
—
—
64
837 339,778 340,615
—
— 141,964 141,964
—
—
— 549,393 549,393
—
—
5
25,198
15
—
86
55,755
263
—
877 $ — $ 1,848 $ 2,233,972 $ 2,235,820 $
25,183
55,492
Nonaccrual
Loans and
Leases
Total
Loans
and
Leases
265 $ 946,879
2,169 178,450
1,653 342,268
— 141,964
941 550,334
25,200
55,892
5,167 $ 2,240,987
2
137
(dollars in thousands)
As of December 31, 2015
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Accruing Loans and Leases
30 – 59
Days
Past
Due
$ 1,016 $
1,445
1,475
—
—
20
375
$ 4,331 $
60 – 89
Days
Past
Due
Over 89
Days
Past
Due
Total
Past
Due
Total
Accruing
Loans and
Leases
Current*
Nonaccrual
Loans and
Leases
Total
Loans
and
Leases
155 $ — $ 1,171 $ 771,121 $ 772,292 $
— 1,445 167,956 169,401
—
9
— 1,484 313,039 314,523
87,121
—
—
—
— 459,702 459,702
—
—
21,934
20
—
—
123
51,778
498
—
287 $ — $ 4,618 $1,872,133 $1,876,751 $
21,914
51,280
87,121
34
279 $ 772,571
1,788 171,189
1,964 316,487
87,155
3,044 462,746
21,934
51,787
7,118 $ 1,883,869
—
9
*included as “current” are $13.5 million and $10.1 million of loans and leases as of December 31, 2016 and 2015,
respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has
been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting
date. The Corporation does not consider these loans to be delinquent.
81
The following tables present an aging of acquired portfolio loans and leases as of the dates indicated:
(dollars in thousands)
As of December 31, 2016
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Accruing Loans and Leases
30 – 59
Days
Past
Due
60 – 89
Days
Past
Due
Over 89
Days
Past
Due
Total
Past
Due
Total
Accruing
Loans
and
Leases
Current*
Nonaccrual
Loans and
Leases
Total
Loans
and
Leases
$
$
666 $ 163,298 $ 163,964 $
666 $ — $ — $
— 29,429 29,429
—
—
—
426
50
476 69,791 70,267
—
—
—
—
—
—
—
36
36 27,405 27,441
—
—
—
141
141
—
—
—
426 $ — $ 1,178 $ 290,064 $ 291,242 $
752 $
Accruing Loans and Leases
55 $164,019
120 29,549
1,005 71,272
—
2,016 29,457
141
3,196 $294,438
—
—
Total
Accruing
Loans
and
$
Total
Past
Due
(dollars in thousands)
60 – 89
Days
Past
Due
30 – 59
Days
Past
Due
As of December 31, 2015
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Over 89
Days
Past
Due
56 $ — $
—
15
65
—
—
—
39
—
—
—
175 $ — $
*included as “current” are $1.8 million and $418 thousand of loans and leases as of December 31, 2016 and 2015,
respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has
been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting
date. The Corporation does not consider these loans to be delinquent.
166 $ 190,972 $ 191,138 $
166 37,879 38,045
513 88,156 88,669
—
3,266
3,266
138 60,542 60,680
—
195
195
983 $ 381,010 $ 381,993 $
Total
Loans
and
Leases
550 $191,688
239 38,284
1,248 89,917
— 3,266
1,089 61,769
195
3,126 $385,119
110 $
151
448
—
99
—
808 $
Nonaccrual
Loans and
Leases
Current*
Leases
—
$
F. Allowance for Loan and Lease Losses (the “Allowance”)
The following tables detail the roll-forward of the Allowance for the twelve months ended December 31, 2016:
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Commercial
and
(dollars in thousands)
Balance, December 31, 2015
Charge-offs
Recoveries
Provision for loan and lease losses
$
Balance, December 31, 2016
$
1,324 $
—
64
845
2,233
Industrial Consumer Leases Unallocated Total
18 $ 15,857
142 $ 518 $
— (3,287)
(808)
(173)
—
590
232
23
(18) 4,326
617
161
— 17,486
559
153
5,609 $
(1,298)
93
738
5,142
5,199 $ 1,307 $
(592)
(110)
68
62
1,076
472
6,227 1,255
1,740 $
(306)
48
435
1,917
82
The following table details the roll-forward of the Allowance for the twelve months ended December 31, 2015:
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Commercial
and
(dollars in thousands)
Balance, December 31, 2014
Charge-offs
Recoveries
Provision for loan and lease losses
$
Balance December 31, 2015
$
3,948 $ 1,917 $
(774)
(50)
98
27
1,274
66
5,199 $ 1,307 $
1,736 $
(791)
35
760
1,740 $
1,367 $
—
4
(47)
1,324 $
Industrial Consumer Leases Unallocated Total
379 $ 14,586
238 $ 468 $
— (3,454)
(442)
(177)
329
—
101
29
(361) 4,396
391
52
18 $ 15,857
142 $ 518 $
4,533 $
(1,220)
35
2,261
5,609 $
The following table details the allocation of the Allowance for all portfolio loans and leases by portfolio segment based on
the methodology used to evaluate the loans and leases for impairment as of December 31, 2016 and December 31, 2015:
(dollars in thousands)
As of December 31, 2016
Allowance on loans and leases:
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Industrial Consumer Leases Unallocated Total
Commercial
and
Individually evaluated for impairment $
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
$
— $ — $
6,227 1,255
— —
6,227 $ 1,255 $
73 $
1,844
—
1,917 $
As of December 31, 2015
Allowance on loans and leases:
Individually evaluated for impairment $
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
$
— $ 115 $
5,199 1,192
— —
5,199 $ 1,307 $
54 $
1,686
—
1,740 $
— $
2,233
—
2,233 $
— $
1,324
—
1,324 $
5 $
5,137
—
5,142 $
519 $
5,090
—
5,609 $
8 $ — $
559
145
— —
153 $ 559 $
5 $ — $
137
518
— —
142 $ 518 $
— $
86
— 17,400
— —
— $ 17,486
693
— $
18 15,164
— —
18 $ 15,857
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
The following table details the carrying value for all portfolio loans and leases by portfolio segment based on the
methodology used to evaluate the loans and leases for impairment as of December 31, 2016 and December 31, 2015:
(dollars in thousands)
As of December 31, 2016
Carrying value of loans and leases:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
As of December 31, 2015
Carrying value of loans and leases:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Industrial Consumer Leases Total
Commercial
and
$
1,576 $
2,354 $
1,098,788 205,540
105
$ 1,110,898 $ 207,999 $
10,534
7,266 $
406,271
3
413,540 $
— $
141,964
—
141,964 $
2,946 $
575,055
1,790
579,791 $
$
$
349 $
1,980 $
952,448 207,378
11,462
115
964,259 $ 209,473 $
7,754 $
398,635
15
406,404 $
33 $
89,625
763
90,421 $
4,240 $
515,784
4,491
524,515 $
31 $
— $
14,173
25,310 55,892 2,508,820
12,432
25,341 $ 55,892 $ 2,535,425
—
—
30 $
— $
14,386
22,099 51,787 2,237,756
16,846
22,129 $ 51,787 $ 2,268,988
—
—
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
83
The following table details the allocation of the Allowance for originated portfolio loans and leases by portfolio segment
based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2016 and December 31,
2015:
(dollars in thousands)
As of December 31, 2016
Allowance on loans and leases:
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Industrial Consumer Leases Unallocated Total
Commercial
and
Individually evaluated for impairment $
Collectively evaluated for impairment
$
Total
— $ — $
6,227 1,255
6,227 $ 1,255 $
45 $
1,844
1,889 $
— $
2,233
2,233 $
5 $
5,137
5,142 $
8 $ — $
145
559
153 $ 559 $
— $
58
— 17,400
— $ 17,458
As of December 31, 2015
Allowance on loans and leases:
Individually evaluated for impairment $
Collectively evaluated for impairment
$
Total
— $ 115 $
5,199 1,192
5,199 $ 1,307 $
54 $
1,686
1,740 $
— $
1,324
1,324 $
519 $
5,090
5,609 $
5 $ — $
137
518
142 $ 518 $
— $
693
18 15,164
18 $ 15,857
The following table details the carrying value for originated portfolio loans and leases by portfolio segment based on the
methodology used to evaluate the loans and leases for impairment as of December 31, 2016 and December 31, 2015:
(dollars in thousands)
As of December 31, 2016
Carrying value of loans and leases:
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Commercial
and
Industrial
Consumer Leases Total
Individually evaluated for impairment $
Collectively evaluated for impairment
$
Total
1,521 $
2,319 $
945,358 176,131
946,879 $ 178,450 $
4,111 $
338,157
342,268 $
— $
141,964
141,964 $
1,190 $
549,144
550,334 $
31 $ — $
9,172
25,169 55,892 2,231,815
25,200 $ 55,892 $ 2,240,987
As of December 31, 2015
Carrying value of loans and leases:
Individually evaluated for impairment $
Collectively evaluated for impairment
$
Total
279 $
1,832 $
772,292 169,357
772,571 $ 171,189 $
4,394 $
312,093
316,487 $
33 $
87,122
87,155 $
3,229 $
459,517
462,746 $
30 $ — $
9,797
21,904 51,787 1,874,072
21,934 $ 51,787 $ 1,883,869
The following table details the allocation of the Allowance for acquired portfolio loans and leases by portfolio segment
based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2016 and December 31,
2015:
(dollars in thousands)
As of December 31, 2016
Allowance on loans and leases:
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Industrial Consumer Leases Unallocated Total
Commercial
and
Individually evaluated for impairment $
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
$
As of December 31, 2015
Allowance on loans and leases:
Individually evaluated for impairment $
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
$
— $ — $
— —
— —
— $ — $
— $ — $
— —
— —
— $ — $
28 $
—
—
28 $
— $
—
—
— $
— $
—
—
— $
— $
—
—
— $
— $
—
—
— $
— $
—
—
— $
— $ — $
— —
— —
— $ — $
— $ — $
— —
— —
— $ — $
— $ 28
— —
— —
— $ 28
— $ —
— —
— —
— $ —
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
84
The following table details the carrying value for acquired portfolio loans and leases by portfolio segment based on the
methodology used to evaluate the loans and leases for impairment as of December 31, 2016 and December 31, 2015:
(dollars in thousands)
As of December 31, 2016
Carrying value of loans and leases:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
As of December 31, 2015
Carrying value of loans and leases:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired(1)
Total
Home
Equity
Lines
and
Loans
Commercial
Mortgage
Residential
Mortgage Construction
Commercial
and
Industrial
Consumer Leases Total
$
$
$
$
55
35
153,430 29,409
10,534
105
164,019 29,549
3,155
68,114
3
71,272
—
—
—
—
1,756
25,911
1,790
29,457
— —
5,001
141 — 277,005
— — 12,432
141 — 294,438
70 $
148 $
180,156 38,021
11,462
115
191,688 $ 38,284 $
3,360 $
86,542
15
89,917 $
— $
2,503
763
3,266 $
1,011 $
56,267
4,491
61,769 $
— $ — $
4,589
195 — 363,684
— — 16,846
195 $ — $ 385,119
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
As part of the process of determining the Allowance for the different segments of the loan and lease portfolio, Management
considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan
segments, periodic reviews of the individual loans are performed by both in-house staff as well as external loan reviewers.
The result of these reviews is reflected in the risk grade assigned to each loan. These internally assigned grades are as
follows:
•
•
•
•
Pass – Loans considered satisfactory with no indications of deterioration.
Special mention - Loans classified as special mention have a potential weakness that deserves management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for
the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment
capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the
institution will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with
the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
In addition, for the remaining segments of the loan and lease portfolio, which include residential mortgage, home equity
lines and loans, consumer, and leases, the credit quality indicator used to determine this component of the Allowance is
based on performance status.
The following tables detail the carrying value of all portfolio loans and leases by portfolio segment based on the credit
quality indicators used to determine the Allowance as of December 31, 2016 and December 31, 2015:
Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)
Pass
Special Mention
Substandard
Doubtful
Total
Commercial Mortgage
December
31, 2015
December
31, 2016
$ 1,099,557 $
1,892
9,449
—
$ 1,110,898 $
Construction
Commercial and
Industrial
Total
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
946,887 $
7,029
10,343
—
964,259 $
140,370 $
—
1,594
—
141,964 $
88,653 $
—
1,768
—
90,421 $
570,342 $
2,315
5,512
1,622
579,791 $
85
510,040 $ 1,810,269 $ 1,545,580
8,152
25,463
—
524,515 $ 1,832,653 $ 1,579,195
1,123
13,352
—
4,207
16,555
1,622
Credit Risk Profile by Payment Activity
(dollars in
thousands)
Residential Mortgage
December
31, 2015
December
31, 2016
Home Equity Lines
and Loans
Consumer
Leases
Total
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
$
Performing
Non-
performing
$
Total
410,882 $
403,192 $
205,710 $
207,446 $
25,339 $
22,129 $
55,755 $
51,778 $
697,686 $
684,545
2,658
413,540 $
3,212
406,404 $
2,289
207,999 $
2,027
209,473 $
2
25,341 $
—
22,129 $
137
55,892 $
9
51,787 $
5,086
702,772 $
5,248
689,793
The following tables detail the carrying value of originated portfolio loans and leases by portfolio segment based on the
credit quality indicators used to determine the Allowance as of December 31, 2016 and December 31, 2015:
Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)
Commercial Mortgage
December
31, 2015
December
31, 2016
Construction
Commercial and
Industrial
Total
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
Pass
Special Mention
Substandard
Doubtful
Total
$
$
936,737 $
1,892
8,250
—
946,879 $
758,240 $
7,029
7,302
—
772,571 $
140,370 $
—
1,594
—
141,964 $
86,065 $
—
1,090
—
87,155 $
544,876 $
2,279
3,054
125
550,334 $
Credit Risk Profile by Payment Activity
454,454 $ 1,621,983 $ 1,298,759
8,044
15,669
—
462,746 $ 1,639,177 $ 1,322,472
4,171
12,898
125
1,015
7,277
—
(dollars in
thousands)
Residential Mortgage
December
31, 2015
December
31, 2016
Home Equity Lines
and Loans
Consumer
Leases
Total
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
$
Performing
Non-
performing
$
Total
340,615 $
314,523 $
176,281 $
169,401 $
25,198 $
21,934 $
55,755 $
51,778 $
597,849 $
557,636
1,653
342,268 $
1,964
316,487 $
2,169
178,450 $
1,788
171,189 $
2
25,200 $
—
21,934 $
137
55,892 $
9
51,787 $
3,961
601,810 $
3,761
561,397
The following tables detail the carrying value of acquired portfolio loans and leases by portfolio segment based on the
credit quality indicators used to determine the Allowance as of December 31, 2016 and December 31, 2015:
Credit Risk Profile by Internally Assigned Grade
(dollars in
thousands)
Commercial Mortgage
Construction
Commercial and Industrial
Total
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
Pass
Special Mention
Substandard
Doubtful
Total
$
$
162,820 $
—
1,199
—
164,019 $
188,647 $
—
3,041
—
191,688 $
— $
—
—
—
— $
2,588 $
—
678
—
3,266 $
25,466 $
36
2,458
1,497
29,457 $
55,586 $
108
6,075
—
61,769 $
188,286 $
36
3,657
1,497
193,476 $
246,821
108
9,794
—
256,723
Credit Risk Profile by Payment Activity
(dollars in
thousands)
Residential Mortgage
Home Equity Lines and
Loans
Consumer
Total
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
December
31, 2016
December
31, 2015
Performing
Non-performing
Total
$
$
70,267 $
1,005
71,272 $
88,669 $
1,248
89,917 $
29,429 $
120
29,549 $
38,045 $
239
38,284 $
141 $
—
141 $
195
—
195
99,837 $
1,125
100,962 $
126,909
1,487
128,396
86
G. Troubled Debt Restructurings (“TDRs”)
The restructuring of a loan is considered a “troubled debt restructuring” if both of the following conditions are met: (i) the
borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common
concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate
for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate
for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment
amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common
concession granted is the forgiveness of a portion of the principal.
The determination of whether a borrower is experiencing financial difficulties takes into account not only the current
financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not
granted. Similarly, the determination of whether a concession has been granted is very subjective in nature. For example,
simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a
concession unless the borrower could readily obtain similar credit terms from a different lender.
The following table presents the balance of TDRs as of the indicated dates:
(dollars in thousands)
TDRs included in nonperforming loans and leases
TDRs in compliance with modified terms
Total TDRs
December 31,
2016
December 31,
2015
$
$
2,632 $
6,395
9,027 $
1,935
4,880
6,815
The following table presents information regarding loan and lease modifications categorized as TDRs for the twelve
months ended December 31, 2016:
(dollars in thousands)
Commercial mortgage
Residential
Home equity lines and loans
Commercial and industrial
Leases
Total
For the Twelve Months Ended December 31, 2016
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
$
$
1,256 $
141
265
1,006
104
2,772 $
1,256
148
265
1,006
104
2,779
Number of
Contracts
1
2
6
4
3
16
The following table presents information regarding the types of loan and lease modifications made for the twelve months
ended December 31, 2016:
Number of Contracts
Commercial mortgage
Residential
Home equity lines and
loans
Commercial and industrial
Leases
Total
Interest
Rate
Change
Loan Term
Extension
1
—
—
—
Interest Rate
Change and
Term
Extension
—
2
Interest Rate
Change
and/or
Interest-Only
Period
Contractual
Payment
Reduction
(Leases only)
—
—
—
—
—
—
—
—
—
3
—
4
87
—
—
—
2
6
—
—
6
—
—
3
3
Temporary
Payment
Deferral
—
—
1
—
1
The following table presents information regarding loan and lease modifications categorized as TDRs for the twelve
months ended December 31, 2015:
(dollars in thousands)
Residential
Home equity lines and loans
Leases
Total
For the Twelve Months Ended December 31, 2015
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
$
$
2,181 $
22
66
2,269 $
2,181
22
66
2,269
Number of
Contracts
4
1
2
7
The following table presents information regarding the types of loan and lease modifications made for the twelve months
ended December 31, 2015:
Number of Contracts
Interest
Rate
Change
Loan Term
Extension
—
—
Interest Rate
Change
and/or
Interest-Only
Period
Interest Rate
Change and
Term
Extension
2
Contractual
Payment
Reduction
(Leases only)
—
2
Temporary
Payment
Deferral
—
—
—
—
—
—
—
—
2
1
—
3
—
2
2
—
—
—
—
Residential
Home equity lines and
loans
Leases
Total
During the twelve months ended December 31, 2016, there were no defaults of loans that had received troubled debt
restructurings in 2015.
88
H. Impaired Loans
The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their
related allowance for loan and lease losses and interest income recognized for the twelve months ended December 31,
2016, 2015 and 2014 (purchased credit-impaired loans are not included in the tables):
(dollars in thousands)
As of or for the Twelve Months
Ended December 31, 2016
Impaired loans with related
allowance:
Residential mortgage
Commercial and industrial
Consumer
Total
Impaired loans* without related
allowance:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Commercial and industrial
Total
Recorded
Investment**
Principal
Balance
Related
Allowance
Average
Principal
Balance
Interest
Income
Recognized
Cash-Basis
Interest
Income
Recognized
$
622 $
84
31
737
622 $
84
31
737
1,577
2,354
6,644
2,862
13,437
1,577
2,778
6,970
3,692
15,017
73 $
5
8
86
—
—
—
—
—
639 $
103
33
775
1,583
2,833
7,544
8,362
20,322
27 $
5
2
34
70
25
276
146
517
—
—
—
—
—
—
—
—
—
—
—
Grand total
$
14,174 $
15,754 $
86 $
21,097 $
551 $
*The table above does not include the recorded investment of $240 thousand of impaired leases without a related
allowance for loan and lease losses.
**Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans
that have been applied to principal.
(dollars in thousands)
As of or for the Twelve Months
Ended December 31, 2015
Impaired loans with related
allowance:
Home equity lines and loans
Residential mortgage
Commercial and industrial
Consumer
Total
Impaired loans* without related
Recorded
Investment**
Principal
Balance
Related
Allowance
Average
Principal
Balance
Interest
Income
Recognized
Cash-Basis
Interest
Income
Recognized
$
115 $
515
2,011
30
2,671
115 $
527
2,002
30
2,674
115 $
54
519
5
693
125 $
531
2,215
31
2,902
4 $
23
49
1
77
—
—
—
—
—
allowance:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
—
—
—
—
—
—
—
—
*The table above does not include the recorded investment of $77 thousand of impaired leases without a related allowance
for loan and lease losses.
349
1,865
7,239
33
2,229
11,715
358
2,447
8,166
996
3,089
15,056
361
2,605
8,085
1,087
4,985
17,123
9
46
257
—
124
436
—
—
—
—
—
—
Grand total
14,386 $
17,730 $
20,025 $
693 $
513 $
Total
$
**Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans
that have been applied to principal.
89
(dollars in thousands)
As of or for the Twelve Months
Ended December 31, 2014
Impaired loans with related
allowance:
Home equity lines and loans
Residential mortgage
Commercial and industrial
Consumer
Total
Impaired loans* without related
Recorded
Investment**
Principal
Balance
Related
Allowance
Average
Principal
Balance
Interest
Income
Recognized
Cash-Basis
Interest
Income
Recognized
$
111 $
3,273
2,069
31
5,484
198 $
3,260
2,527
32
6,017
4 $
184
448
32
668
197 $
3,289
2,577
32
6,095
— $
112
49
1
162
—
—
—
—
—
allowance:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
—
—
—
—
—
—
—
—
*The table above does not include the recorded investment of $32 thousand of impaired leases without a related allowance
for loan and lease losses.
103
1,251
6,210
1,427
1,430
10,421
97
1,137
5,794
1,225
1,403
9,656
97
1,044
5,369
264
1,391
8,165
4
12
152
—
11
179
—
—
—
—
—
—
Grand total
15,673 $
16,516 $
13,649 $
341 $
668 $
Total
$
**Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans
that have been applied to principal.
I. Loan Mark
Loans acquired in mergers and acquisitions are recorded at fair value as of the date of the transaction. This adjustment to
the acquired principal amount is referred to as the “Loan Mark”. With the exception of purchased credit impaired loans, for
which the Loan Mark is accounted under ASC 310-30, the Loan Mark is amortized or accreted as an adjustment to yield
over the lives of the loans.
The following tables detail, for acquired loans, the outstanding principal, remaining loan mark, and recorded investment,
by portfolio segment, as of the dates indicated:
(dollars in thousands)
Commercial mortgage
Home equity lines and loans
Residential mortgage
Commercial and industrial
Consumer
Total
(dollars in thousands)
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Total
Outstanding
Principal
As of December 31, 2016
Remaining Loan
Mark
Recorded
Investment
168,612 $
31,236
73,902
32,812
163
306,725 $
(4,593) $
(1,687)
(2,630)
(3,355)
(22)
(12,287) $
164,019
29,549
71,272
29,457
141
294,438
Outstanding
Principal
As of December 31, 2015
Remaining Loan
Mark
Recorded
Investment
197,532 $
40,258
93,230
3,807
67,181
220
402,228 $
(5,844) $
(1,974)
(3,313)
(541)
(5,412)
(25)
(17,109) $
191,688
38,284
89,917
3,266
61,769
195
385,119
$
$
$
$
90
Note 6 - Other Real Estate Owned
Other real estate owned consists of properties acquired as a result of foreclosures or deeds in-lieu-of foreclosure. Properties
or other assets are classified as OREO and are reported at the lower of carrying value or fair value, less estimated costs to
sell. Costs relating to the development or improvement of assets are capitalized, and costs relating to holding the property
are charged to expense. As of December 31, 2016 the balance of OREO is comprised of seven single-family residential
properties.
The summary of the change in other real estate owned, which is included as a component of other assets on the
Corporation's Consolidated Balance Sheets, is as follows:
(dollars in thousands)
Balance January 1
Additions
Impairments
Sales
Balance December 31
Note 7 - Premises and Equipment
A. A summary of premises and equipment is as follows:
(dollars in thousands)
Land
Buildings
Furniture and equipment
Leasehold improvements
Construction in progress
Less: accumulated depreciation
Total
December 31,
2016
2015
2,638 $
355
(94 )
(1,882 )
1,017 $
1,147
2,673
(89)
(1,093)
2,638
December 31,
2016
2015
5,306 $
24,998
36,930
24,713
56
(50,225)
41,778 $
5,306
24,820
34,758
24,596
500
(44,641)
45,339
$
$
$
$
Depreciation and amortization expense related to the assets detailed in the above table for the years ended December 31,
2016, 2015, and 2014 amounted to $5.8 million, $5.1 million, and $3.6 million, respectively.
B. Future minimum cash rent commitments under various operating leases as of December 31, 2016 are as follows:
(dollars in thousands)
2016
2017
2018
2019
2020
2021 and thereafter
Total
$
$
4,234
4,166
3,908
3,345
2,721
13,109
31,483
Rent expense on leased premises and equipment for the years ended December 31, 2016, 2015 and 2014 amounted to $4.6
million, $5.1 million, and $3.3 million, respectively.
91
Note 8 - Mortgage Servicing Rights (“MSR”s)
A. The following summarizes the Corporation’s activity related to MSRs for the years ended December 31:
(dollars in thousands)
Balance, January 1
Additions
Amortization
Impairment
Balance, December 31
Fair value
Residential mortgage loans serviced for others
2016
2015
2014
$
$
$
$
5,142 $
1,321
(750)
(131)
5,582 $
6,154 $
631,889 $
4,765 $
1,037
(590 )
(70 )
5,142 $
5,726 $
601,939 $
4,750
547
(476 )
(56 )
4,765
5,456
590,660
B. 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)
Balance, January 1
Impairment
Recovery
Balance, December 31
2016
2015
2014
$
$
(1,674) $
(715)
584
(1,805) $
(1,604 ) $
(123 )
53
(1,674 ) $
(1,548 )
(97 )
41
(1,604 )
C. Other MSR Information – At December 31, 2016, key economic assumptions and the sensitivity of the current fair
value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:
(dollars in thousands)
Fair value amount of MSRs
Weighted average life (in years)
Prepayment speeds (constant prepayment rate)*
Impact on fair value:
10% adverse change
20% adverse change
Discount rate
Impact on fair value:
10% adverse change
20% adverse change
$
$
$
$
$
6,154
6.3
10.2%
(115)
(238)
9.55%
(225)
(434)
* Represents the weighted average prepayment rate for the life of the MSR asset.
At December 31, 2016, 2015 and 2014, the fair value of the MSRs was $6.2 million, $5.7 million, and $5.5 million,
respectively. The fair value of the MSRs for these dates was determined using values obtained from a third party which
utilizes a valuation model which calculates the present value of estimated future servicing income. The model incorporates
assumptions that market participants use in estimating future net servicing income, including estimates of prepayment
speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay
their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value
of future net servicing income. Another key assumption in the model is the required rate of return the market would expect
for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions
and interest rates change. Management reviews, annually, the process utilized by its independent third-party valuation
experts.
These assumptions and sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in
fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change
in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the
fair value of the MSRs is calculated without changing any other assumption. In reality, changes in one factor may result in
changes in another, which could magnify or counteract the sensitivities.
92
Note 9 - Deposits
A. The following table details the components of deposits:
(dollars in thousands)
Savings
NOW accounts*
Market rate accounts*
Retail time deposits, less than $100
Retail time deposits, $100 or more
Wholesale time deposits
Total interest-bearing deposits
Non-interest-bearing deposits
Total deposits
*
Includes wholesale deposits.
As of December 31,
2016
2015
$
$
232,193 $
380,057
835,296
139,276
183,636
73,037
1,843,495
736,180
2,579,675 $
187,299
339,366
816,938
123,113
106,140
53,185
1,626,041
626,684
2,252,725
The aggregate amount of deposit and mortgage escrow overdrafts included as loans as of December 31, 2016 and 2015
were $818 thousand and $840 thousand, respectively.
B. The following tables detail the maturities of retail time deposits:
(dollars in thousands)
Maturing during:
2017
2018
2019
2020
2021 and thereafter
Total
C. The following tables detail the maturities of wholesale time deposits:
(dollars in thousands)
Maturing during:
2017
Total
As of December 31, 2016
$100
or more
Less than
$100
$
$
154,965 $
16,281
4,982
3,044
4,364
183,636 $
107,043
17,152
8,011
3,466
3,604
139,276
As of December 31, 2016
$100
or more
Less than
$100
$
$
72,783 $
72,783 $
254
254
Note 10 - Short-Term Borrowings and Long-Term FHLB Advances
A. Short-term borrowings – As of December 31, 2016 and 2015, the Corporation had $204.2 million and $94.2 million of
short-term borrowings (original maturity of one year or less), respectively, which consisted of funds obtained from
overnight repurchase agreements with commercial customers, an overnight repurchase agreement with a correspondent
bank, short-term FHLB advances and overnight federal funds.
93
A summary of short-term borrowings is as follows:
(dollars in thousands)
Repurchase agreements* – commercial customers
Repurchase agreement – correspondent bank
Short-term FHLB advances
Overnight federal funds
Total short-term borrowings
* overnight repurchase agreements with no expiration date
The following table sets forth information concerning short-term borrowings:
(dollars in thousands)
Balance at period-end
Maximum amount outstanding at any month end
Average balance outstanding during the period
Weighted-average interest rate:
As of the period-end
Paid during the period
As of December 31,
2016
2015
$
$
39,151 $
—
165,000
—
204,151 $
29,156
5,011
30,000
30,000
94,167
As of or Twelve Months Ended
December 31,
2016
2015
$
$
$
204,151
204,151
37,041
$
$
$
0.66%
0.25%
94,167
94,167
36,010
0.56%
0.13%
Average balances outstanding during the year represent daily average balances and average interest rates represent interest
expense divided by the related average balance.
B. Long-term FHLB Advances:
As of December 31, 2016 and 2015, the Corporation had $189.7 million and $254.9 million, respectively, of long-term
FHLB advances (original maturities exceeding one year).
The following table presents the remaining periods until maturity of the long-term FHLB advances:
(dollars in thousands)
Within one year
Over one year through five years
Total
As of December 31,
2016
2015
$
$
75,000 $
114,742
189,742 $
75,000
179,863
254,863
The following table presents rate and maturity information on FHLB advances and other borrowings:
Description
Bullet maturity – fixed rate
Bullet maturity – variable rate
Convertible-fixed
Total
Maturity Range*
From
To
Weighted
Average
Coupon Rate
Balance at
December 31,
Rate
From
To
2016
2015
02/01/17 12/09/20
11/28/17 11/28/17
01/03/18 08/20/18
1.44%
1.08%
2.94%
0.80%
1.08%
2.58%
2.13% 153,612 198,612
35,000
15,000
1.08%
21,251
21,130
3.50%
$ 189,742 $ 254,863
*Maturity range and interest rates refers to December 31, 2016 balances
**Loans from correspondent banks other than FHLB
Included in the table above as of December 31, 2016 and 2015 are $21.1 million and $21.3 million, respectively, of long-
term FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an
adjustable interest rate indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay
these advances, without penalty, if the FHLB elects to convert the interest rate to an adjustable rate. As of December 31,
94
2016, substantially all the FHLB advances with this convertible feature are subject to conversion in fiscal 2017. These
advances are included in the periods in which they mature, rather than the period in which they are subject to conversion.
C. Other Information –In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of
the FHLB. The amount of capital stock held was $17.3 million at December 31, 2016, and $12.9 million at December 31,
2015. The carrying amount of the FHLB stock approximates its redemption value.
The level of required investment in FHLB stock is based on the balance of outstanding loans the Corporation has from the
FHLB. Although FHLB stock is a financial instrument that represents an equity interest in the FHLB, it does not have a
readily determinable fair value. FHLB stock is generally viewed as a long-term investment. Accordingly, when evaluating
FHLB stock for impairment, its value should be determined based on the ultimate recoverability of the par value rather than
by recognizing temporary declines in value.
The Corporation had a maximum borrowing capacity (“MBC”) with the FHLB of $1.22 billion as of December 31, 2016 of
which the unused capacity was $886.0 million. In addition there were $79.0 million in overnight federal funds line, $117.3
million of Federal Reserve Discount Window capacity and $5.0 million in a correspondent bank line of credit.
Note 11 – Subordinated Notes
On August 6, 2015, the Corporation completed the issuance of $30 million in aggregate principal amount of fixed-to-
floating rate subordinated notes (the "Notes") due 2025 in a private placement transaction to institutional accredited
investors.
The net proceeds of the offering, which totaled $29.5 million, increased Tier 2 regulatory capital and the Corporation
intends to use the net proceeds for general corporate purposes including share repurchases, possible acquisitions and
organic growth. The debt issuance costs are included as a direct deduction from the debt liability and the costs are
amortized to interest expense using the effective interest method.
The Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until August 14, 2020, with the first
interest payment on the Notes occurring on February 15, 2016 and semi-annually thereafter each August 15 and February
15 through August 15, 2020. Thereafter, the Notes will bear interest at a variable rate that will reset quarterly to a level
equal to the then-current three-month LIBOR rate plus 3.068% until August 15, 2025, or any early redemption date,
payable quarterly on November 15, February 15, May 15 and August 15 of each year. Beginning with the interest payment
date of August 15, 2020, and on any scheduled interest payment date thereafter, the Corporation has the option to redeem
the Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed Notes, plus
accrued and unpaid interest to the date of the redemption.
In conjunction with the issuance, the Corporation engaged the Kroll Bond Rating Agency (“KBRA”) to assign a senior
unsecured long-term debt rating, a subordinated debt rating and a short-term rating to the Corporation. As a result of their
evaluation, KBRA assigned the Corporation a senior unsecured debt rating of A-, a subordinated debt rating of BBB+ and a
short-term debt rating of K2.
Note 12 - Derivatives and Hedging Activities
In December 2012, the Corporation entered into a forward-starting interest rate swap (the “Swap”) to hedge the cash flows
of a $15 million floating-rate FHLB borrowing. The Swap involves the exchange of the Corporation’s floating rate interest
payments on the underlying principal amount. The Swap was designated, and qualified, for cash-flow hedge accounting.
For derivative instruments that are designated and qualify as hedging instruments, the effective portion of gains or losses is
reported as a component of other comprehensive income, and is subsequently reclassified into earnings as an adjustment to
interest expense in the periods in which the hedged forecasted transaction affects earnings.
On November 30, 2015, the Corporation elected to terminate the Swap and as a result, as of both December 31, 2016 and
2015, the Corporation held no derivative positions.
95
The following table details the Corporation’s derivative positions as of the December 31, 2014:
(dollars in thousands)
Notional
Amount
Trade
Date
Effective
Date
Maturity
Date
Receive (Variable)
Index
Current
Projected
Receive Rate
Pay Fixed
Swap Rate
$
15,000 12/13/2012 11/30/2015 11/28/2022 US 3-Month LIBOR
2.335%
2.376% $
Fair Value of
Asset
(Liability)
(39)
For the twelve months ended December 31, 2015, the tax-effected accumulated other comprehensive loss associated with
the Swap increased by $372 thousand. For the twelve months ended December 31, 2015, the Corporation reclassified $611
thousand, net of income tax benefit of $214 thousand from accumulated other comprehensive loss into earnings. During the
twelve month periods ended December 31, 2014, there were no reclassifications of the Swap’s fair value from other
comprehensive income to earnings.
Note 13 - Disclosure about Fair Value of Financial Instruments
FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information
about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such
value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other
market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate
fair value amounts presented below do not represent the underlying value of the Corporation.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value:
Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair values.
Investment Securities
Fair values for investment securities are generally determined by the Corporation including the use of an independent third
party based on market data, utilizing pricing models that vary by asset and incorporate available trade, bid and other market
information. The Corporation reviews, annually, the process utilized by its independent third-party valuation service
provider. On a quarterly basis, the Corporation tests the validity of the prices provided by the third party by selecting a
representative sample of the portfolio and obtaining actual trade results, or if actual trade results are not available,
competitive broker pricing. On an annual basis, the Corporation evaluates, for appropriateness, the methodology utilized by
the independent third-party valuation service provider.
Loans Held for Sale
The fair value of loans held for sale is based on pricing obtained from secondary markets.
Net Portfolio Loans and Leases
For variable rate loans that reprice frequently and which have no significant change in credit risk, estimated fair values are
based on carrying values. Fair values of certain fixed rate mortgage loans and consumer loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of
similar credit quality and is indicative of an entry price. The estimated fair value of nonperforming loans is based on
discounted estimated cash flows as determined by the internal loan review of the Bank or the appraised market value of the
underlying collateral, as determined by independent third party appraisers. This technique does not reflect an exit price.
Impaired Loans
The Corporation evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of
such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and
management’s discount of the value is based on the factors unique to each impaired loan. The significant unobservable
96
input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan,
which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory
and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed
appraisers hired by the Corporation. Appraised and reported values may be discounted based on management’s historical
knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise
and knowledge of the client and the client’s business.
Other Real Estate Owned
Other real estate owned consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure.
Properties are classified as OREO and are reported at the lower of cost or fair value less cost to sell, and are classified as
Level 3 in the fair value hierarchy.
Mortgage Servicing Rights
The fair value of the MSRs for these periods was determined using a proprietary third-party valuation model that calculates
the present value of estimated future servicing income. The model incorporates assumptions that market participants use in
estimating future net servicing income, including estimates of prepayment speeds and discount rates. Due to the proprietary
nature of the valuation model used and the lack of observable inputs, the Corporation classifies the value of MSRs as using
Level 3 inputs.
Other Assets
Due to their short-term nature, the carrying amounts of accrued interest receivable, income taxes receivable and other
investments approximate their fair value.
Deposits
The fair values disclosed for non-interest-bearing demand deposits, savings, NOW accounts, and market rate accounts are,
by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for
certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of expected monthly maturities on the certificates of deposit. FASB Codification 825
defines the fair value of demand deposits as the amount payable on demand, as of the reporting date, and prohibits
adjusting estimated fair value from any value derived from retaining those deposits for an expected future period of time.
Short-term borrowings
Due to their short-term nature, the carrying amount of short-term borrowings, which include overnight repurchase
agreements approximate their fair value.
FHLB Advances and Other Borrowings
The fair value of FHLB advances and other borrowings is established using a discounted cash flow calculation that applies
interest rates currently being offered on mid-term and long term borrowings.
Subordinated Notes
The fair value of the Notes is estimated by discounting the principal balance using the FHLB yield curve for the term to the
call date as the Corporation has the option to call the Notes. The Notes are classified within Level 2 in the fair value
hierarchy.
Other Liabilities
The carrying amounts of accrued interest payable and other accrued payables approximate fair value. The fair value of the
interest-rate swap derivative is derived from quoted prices for similar instruments in active markets and is classified as
using Level 2 inputs.
97
Off-Balance Sheet Instruments
The fair values of the Corporation’s commitments to extend credit, standby letters of credit and financial guarantees are not
included in the table below as their carrying values generally approximate their fair values. These instruments generate fees
that approximate those currently charged to originate similar commitments.
The carrying amount and fair value of the Corporation’s financial instruments are as follows:
(dollars in thousands)
Financial assets:
Cash and cash equivalents
Investment securities - available for sale
Investment securities - trading
Investment securities – held to maturity
Loans held for sale
Net portfolio loans and leases
Mortgage servicing rights
Other assets
Total financial assets
Financial liabilities:
Deposits
Short-term borrowings
FHLB advances and other borrowings
Subordinated notes
Other liabilities
As of December 31,
2016
2015
Fair Value
Hierarchy
Level*
Carrying
Amount Fair Value
Carrying
Amount Fair Value
Level 1
$
See Note 14
See Note 14
50,765 $
566,996
3,888
2,879
9,621
50,765 $ 143,067 $
348,966
3,950
—
8,987
143,067
348,966
3,950
—
8,987
2,517,939 2,505,546 2,253,131 2,273,947
5,726
30,271
566,996
3,888
2,818
9,621
5,582
34,465
6,154
34,465
5,142
30,271
$ 3,192,135 $ 3,180,253 $ 2,793,514 $ 2,814,914
$ 2,579,675 $ 2,579,011 $ 2,252,725 $ 2,251,703
94,156
254,796
27,453
34,052
94,167
254,863
29,479
34,052
204,151
186,863
29,228
37,303
204,151
189,742
29,532
37,303
Level 2
Level 2
Level 3
Level 3
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Total financial liabilities
$ 3,040,403 $ 3,036,556 $ 2,665,286 $ 2,662,160
*see Note 14 in the Notes to Consolidated Financial Statements for a description of hierarchy levels.
Note 14 - Fair Value Measurement
FASB ASC 820, “Fair Value Measurement” establishes a fair value hierarchy based on the nature of data inputs for fair
value determinations, under which the Corporation is required to value each asset using assumptions that market
participants would utilize to value that asset. When the Corporation uses its own assumptions it is required to disclose
additional information about the assumptions used and the effect of the measurement on earnings or the net change in
assets for the period.
The value of the Corporation’s available for sale investment securities, which include obligations of the U.S. government
and its agencies, mortgage-backed securities issued by U.S. government- and U.S. government sponsored agencies,
obligations of state and political subdivisions, corporate bonds, other debt securities, as well as bond mutual funds are
determined by the Corporation, including the use of an independent third party. The Corporation performs tests to assess
the validity of these third-party values. The third party’s evaluations are based on market data. They utilize pricing models
that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a
daily basis, their pricing models apply available information such as benchmarking and matrix pricing. The market inputs
normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only
obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets,
benchmark securities, bid, offers and reference data. For certain securities, additional inputs may be used or some market
inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.
98
U.S. Government agencies are evaluated and priced using multi-dimensional relational models and option adjusted spreads.
State and municipal securities are evaluated on a series of matrices including reported trades and material event notices.
Mortgage-backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment
speeds, monthly payment information and other benchmarks. Other available-for-sale investments are evaluated using a
broker-quote based application, including quotes from issuers.
The value of the investment portfolio is determined using three broad levels of inputs:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level 3 – Instruments whose significant value drivers are unobservable.
These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following
tables summarize the assets at December 31, 2016 and 2015 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 as of December 31, 2016:
(dollars in millions)
Investment securities (available for sale and trading):
U.S. Treasury securities
Obligations of U.S. government & agencies
Obligations of state & political subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Mutual funds
Other debt securities
Total assets measured on a recurring basis at fair value
Total
Level 1
Level 2
Level 3
$
$
200.1 $
82.2
33.5
188.8
48.7
19.1
1.3
573.7 $
200.1 $
—
—
—
—
19.1
—
219.2 $
— $
82.2
33.5
188.8
48.7
—
1.3
354.5 $
—
—
—
—
—
—
—
—
Fair value of assets measured on a non-recurring basis as of December 31, 2016:
(dollars in millions)
Mortgage servicing rights
Impaired loans and leases
OREO
Total
Level 1
Level 2
Level 3
$
6.2 $
14.3
1.0
— $
—
—
— $
—
—
6.2
14.3
1.0
Total assets measured at fair value on a non-recurring basis
$
21.5 $
— $
— $
21.5
Fair value of assets measured on a recurring basis as of December 31, 2015:
(dollars in millions)
Investment securities (available for sale and trading):
U.S. Treasury securities
Obligations of U.S. government & agencies
Obligations of state & political subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Mutual funds
Other debt securities
Total assets measured on a recurring basis at fair value
Total
Level 1
Level 2
Level 3
$
$
0.1 $
101.5
42.0
158.7
29.8
19.2
1.6
352.9 $
0.1 $
—
—
—
—
19.2
—
19.3 $
— $
101.5
42.0
158.7
29.8
—
1.6
333.6 $
—
—
—
—
—
—
—
—
99
Fair value of assets measured on a non-recurring basis as of December 31, 2015:
(dollars in millions)
Mortgage servicing rights
Impaired loans and leases
OREO
Total
Level 1
Level 2
Level 3
$
5.7 $
13.8
2.6
— $
—
—
— $
—
—
5.7
13.8
2.6
Total assets measured at fair value on a non-recurring basis
$
22.1 $
— $
— $
22.1
For the twelve months ended December 31, 2016, a net decrease of $607 thousand in the Allowance was recorded and for
the twelve months ended December 31, 2015, a net increase of $448 thousand in the Allowance was recorded as a result of
adjusting the carrying value and estimated fair value of the impaired loans in the above tables. As it relates to the fair
values of assets measured on a recurring basis, there have been no transfers between levels during the twelve months ended
December 31, 2016.
Note 15 - 401(K) Plan and Other Defined Contribution Plans
The Corporation has a qualified defined contribution plan (the “401(K) Plan”) for all eligible employees, under which the
Corporation matches employee contributions up to a maximum of 3.0% of the employee’s base salary. The Corporation’s
expenses for the 401(K) Plan were $1.0 million, $920 thousand and $846 thousand in 2016, 2015 and 2014, respectively.
In addition to the matching contribution above, the Corporation provides a discretionary, non-matching employer
contribution to the 401(K) Plan. The Corporation’s expense for the non-matching discretionary contribution was $126
thousand, $1.3 million and $1.1 million, for the twelve months ended December 31, 2016, 2015 and 2014, respectively. In
connection with the December 31, 2015 settlement of the Qualified Defined Benefit Plan, $2.3 million of excess assets
were transferred to the Corporation’s 401(K) plan. As a result, the expense recorded for the non-matching discretionary
contribution was significantly lower for 2016, as compared to the previous two years.
On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the
“EDCP”), a non-qualified defined-contribution plan which was restricted to certain senior officers of the Corporation. The
intended purpose of the EDCP is to provide deferred compensation to a select group of employees. The Corporation’s
expense for the EDCP, for the twelve months ended December 31, 2016, 2015 and 2014 was $272 thousand, $164
thousand and $239 thousand, respectively.
Note 16 - Pension and Postretirement Benefit Plans
A. General Overview – Prior to December 31, 2015, the Corporation had three defined-benefit pension plans comprised of
a qualified defined benefit plan (the “QDBP”) which covered all employees over age 20 1/2 who met certain service
requirements, and two non-qualified defined-benefit supplemental executive retirement plans (“SERP I” and “SERP II”)
which are restricted to certain senior officers of the Corporation.
On May 29, 2015, by unanimous consent, the Board of Directors of the Corporation voted to settle the QDBP. On June 2,
2015, notices were sent to participants informing them of the settlement. Final distributions to participants were completed
by December 31, 2015. As a result of the settlement of the QDBP, a loss on pension settlement of $17.4 million was
recorded for the twelve months ended December 31, 2015.
SERP I provides each participant with the equivalent pension benefit provided by the QDBP on any compensation and
bonus deferrals that exceed the IRS limit applicable to the QDBP.
On February 12, 2008, the Corporation amended the QDBP and SERP I to freeze further increases in the defined benefit
amounts to all participants, effective March 31, 2008.
On April 1, 2008, the Corporation added SERP II, a non-qualified defined benefit plan which was restricted to certain
senior officers of the Corporation. Effective March 31, 2013, the Corporation curtailed SERP II, as further increases to the
defined benefit amounts to over 20% of the participants were frozen.
100
The Corporation also has a postretirement benefit plan (“PRBP”) that covers certain retired employees and a group of
current employees. The PRBP was closed to new participants in 1994. In 2007, the Corporation amended the PRBP to
allow for settlement of obligations to certain current and retired employees. Certain retired participant obligations were
settled in 2007 and current employee obligations were settled in 2008.
The following 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.
B. Actuarial Assumptions used to determine benefit obligations as of December 31 of the years indicated:
Discount rate
Rate of increase for future
compensation
Expected long-term rate of return
on plan assets
QDBP
2016
2015
SERP I and SERP II
2015
2016
PRBP
2016
2015
N/A
N/A
3.75%
3.90 %
2.80%
3.90%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
C. Changes in Benefit Obligations and Plan Assets:
(dollars in thousands)
Change in benefit obligations
Benefit obligation at January 1 $
Service cost
Interest cost
Plan participants contribution
Actuarial loss (gain)
Settlements
Benefits paid
Benefit obligation at
December 31
Change in plan assets
Fair value of plan assets at
January 1
Actual return on plan assets
Settlements
Excess assets transferred to
defined contribution plan
$
$
Employer contribution
Plan participants’ contribution
Benefits paid
Fair value of plan assets at
QDBP
2016
2015
SERP I & SERP II
2015
2016
PRBP
2016
2015
169 $
—
—
—
—
—
(169)
44,092 $
—
1,589
—
(2,978)
(40,625)
(1,909)
4,830 $
—
184
—
32
—
(260)
5,079 $
—
184
—
(178)
—
(255)
493 $
—
17
49
(6)
—
(135)
540
—
18
46
27
—
(138)
— $
169 $
4,786 $
4,830 $
418 $
493
169 $
—
—
43,874 $
1,140
(40,625)
—
—
—
(169)
(2,311)
—
—
(1,909)
— $
—
—
—
260
—
(260)
— $
—
—
—
254
—
(254)
— $
—
86
49
(135)
—
—
—
—
92
46
(138)
December 31
$
— $
169 $
— $
— $
— $
—
Funded status at year end (plan
assets less benefit obligations) $
— $
— $
(4,786) $
(4,830) $
(418) $
(493)
101
As indicated in the table above, the excess assets remaining in the settled QDBP as of December 31, 2015 were transferred
to the Corporation’s defined contribution plan and serve to defray some of the future costs to fund this plan.
QDBP
SERP I & SERP II
For the Twelve Months Ended December 31,
PRBP
Amounts included in the
consolidated balance sheet as
other assets (liabilities) and
accumulated other
comprehensive income
including the following:
Prepaid benefit cost/(accrued
2016
2015
2016
2015
2016
2015
$
liability)
Net actuarial loss
Prior service cost
Unrecognized net initial
obligation
— $
—
—
—
— $
—
—
(3,248) $
(1,539)
—
(3,266) $
(1,564)
—
(170) $
(248)
—
(197)
(296)
—
—
—
—
—
—
Net included in Other Liabilities
in the Consolidated Balance
Sheets
$
— $
— $
(4,787) $
(4,830) $
(418) $
(493)
D. The following tables provide the components of net periodic pension costs for the periods indicated:
QDBP Net Periodic Pension Cost
(dollars in thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognition of net actuarial loss
Recognition of net actuarial loss due to settlement
Net periodic pension cost (benefit)
SERP I and SERP II Periodic Pension Cost
(dollars in thousands)
Service cost
Interest cost
Gain on curtailment
Amortization of prior service cost
Recognition of net actuarial loss
Net periodic pension cost (benefit)
PRBP Net Periodic Pension Cost
(dollars in thousands)
Service cost
Interest cost
Settlement
Amortization of transition obligation
Amortization of prior service cost
Recognition of net actuarial loss
Net periodic pension cost
For the Twelve Months Ended December 31,
2016
2015
2014
$
$
— $
—
—
—
—
—
— $
— $
1,589
(3,217 )
—
1,913
17,377
17,662 $
—
1,640
(3,348 )
—
391
—
(1,317 )
For the Twelve Months Ended December 31,
2016
2015
2014
$
$
— $
184
—
—
57
241 $
— $
184
—
—
63
247 $
61
177
—
14
(33 )
219
For the Twelve Months Ended December 31,
2016
2015
2014
$
$
— $
17
—
—
—
41
58 $
— $
18
—
—
—
37
55 $
—
29
—
—
—
61
90
For the Twelve Months Ended December 31,
2016
2015
2014
Discount Rate Used in the Calculation of Periodic Pension
Costs
3.90%
3.70 %
4.60 %
102
E. Plan Assets:
The information in this section pertains to the assets of the QDBP. The PRBP, SERP I and SERP II are unfunded plans and,
as such, have no related plan assets.
As of December 31, 2015, with the exception of $169 thousand disbursed in January 2016 to QDBP participants already
receiving benefits, all assets of the QDBP had been distributed to the participants either in the form of an annuity or as a
lump sum payment.
F. Cash Flows
The following benefit payments, which reflect expected future service, are expected to be paid over the next ten years:
(dollars in thousands)
Fiscal year ending
2017
2018
2019
2020
2021
2022-2026
SERP I & SERP II
PRBP
$
$
$
$
$
$
259 $
257 $
256 $
254 $
250 $
1,671 $
78
68
59
50
42
125
G. Other Pension and Post Retirement Benefit Information
In 2005, the Corporation placed a cap on the future annual benefit payable through the PRBP. This cap is equal to 120% of
the 2005 annual benefit.
H. Expected Contribution to be Paid in the Next Fiscal Year
The 2017 expected contribution for the SERP I and SERP II is $259 thousand.
I. Actuarial Losses
As indicated in section C of this footnote, the Corporation’s pension plans had cumulative actuarial losses as of December
31, 2016 that will result in an increase in the Corporation’s future pension expense because such losses at each
measurement date exceed 10% of the greater of the projected benefit obligation or the market-related value of the plan
assets. In accordance with GAAP, net unrecognized gains or losses that exceed that threshold are required to be amortized
over the expected service period of active employees, and are included as a component of net pension cost. Amortization of
these net actuarial losses has the effect of increasing the Corporation’s pension costs as shown on the table in section D of
this footnote.
103
Note 17 – Accumulated Other Comprehensive Loss
The following table details the components of accumulated other comprehensive (loss) income for the twelve months ended
December 31, 2016, 2015 and 2014:
Net Change in
Unrealized
Gains
on Available-
for-Sale
Investment
Securities
Net Change in
Fair Value of
Derivative
Used for Cash
Flow Hedge
Net Change in
Unfunded
Pension
Liability
Accumulated
Other
Comprehensive
Loss
$
$
$
$
$
$
(857) $
2,173
1,316 $
1,316 $
(542)
774 $
774 $
(2,005)
(1,231) $
743 $
(768)
(25) $
(25) $
25
— $
— $
— $
(5,451) $
(7,544)
(12,995) $
(12,995) $
11,809
(1,186) $
(1,186) $
8
(1,178) $
(5,565)
(6,139)
(11,704)
(11,704)
11,292
(412)
(412)
(1,997)
(2,409)
(dollars in thousands)
Balance, December 31, 2013
Net change
Balance, December 31, 2014
Balance, December 31, 2014
Net change
Balance, December 31, 2015
Balance, December 31, 2015
Net change
Balance, December 31, 2016
The following tables detail the amounts reclassified from each component of accumulated other comprehensive loss for the
twelve month periods ended December 31, 2016, 2015 and 2014:
Amount Reclassified from Accumulated
Other Comprehensive Loss
For The Twelve Months Ended December 31,
2015
2016
2014
Affected Income Statement
Category
Description of Accumulated Other
Comprehensive Loss Component
Net unrealized gain on investment
securities available for sale:
Realization of (loss) gain on sale of
investment securities available for sale
$
Less: income tax benefit (expense)
Net of income tax
Cash flow hedge:
Realized loss on cash flow hedge
Less: income tax benefit
Net of income tax
Unfunded pension liability:
Amortization of net loss included in net
periodic pension costs*
Settlement of pension plan settlement
Amortization of prior service cost included
in net periodic pension costs*
Gain on curtailment of SERP II
$
$
$
$
(77 ) $
27
(50 ) $
— $
—
—
98 $
—
—
—
98
34
64 $
931 $
(326)
605 $
(611) $
214
(397)
2,013 $
17,377
—
—
19,390
6,787
12,603 $
Net gain (loss) on sale of available for sale
investment securities
Less: income tax benefit (expense)
Net of income tax
471
(165)
306
—
—
—
419
—
14
—
433
152
281
Other operating expenses
Less: income tax benefit
Net of income tax
Employee benefits
Loss on pension plan settlement
Employee benefits
Net gain on curtailment of nonqualified
pension plan
Total expense before income tax benefit
Less: income tax benefit
Net of income tax
*Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See
Note 16 - Pension and Other Post-Retirement Benefit Plans.
104
Note 18 – Income Taxes
A. Components of Net Deferred Tax Asset:
(dollars in thousands)
Deferred tax assets:
Loan and lease loss reserve
Other reserves
Net operating loss carry-forward
Alternative minimum tax credits
Unrealized depreciation of available for sale securities
Defined benefit plans
Total deferred tax asset
Deferred tax liabilities:
Other reserves
Originated MSRs
Amortizing fair value adjustments
Unrealized appreciation of available for sale securities
Total deferred tax liability
Total net deferred tax asset
December 31,
2016
2015
$
$
6,492 $
3,611
471
567
663
2,068
13,872
52
1,969
1,336
—
3,357
10,515 $
5,872
5,509
927
567
—
1,851
14,726
461
1,800
911
417
3,589
11,137
Not included in the table above is a $157 thousand deferred tax asset for state taxes related to net operating losses of our
leasing subsidiary as of December 31, 2016, for which we have recorded a 100% valuation allowance. These state net
operating losses will expire between 2023 and 2035. As a result of the CBH Merger, deferred tax assets were increased by
$7.2 million related to purchase accounting adjustments and net deferred tax assets carried over from CBH.
B. The provision (benefit) for income taxes consists of the following:
(dollars in thousands)
Current
Deferred
Total
2016
2015
2014
$
$
16,492 $
1,676
18,168 $
12,006 $
(2,834 )
9,172 $
12,655
2,350
15,005
C. Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as
follows:
2016
(dollars in thousands)
Computed tax expense at statutory federal rate $ 18,972
(758)
Tax-exempt income
425
State tax (net of federal tax benefit)
—
Non-deductible merger expense
(565)
Excess tax benefit – stock based compensation
Other, net
94
$ 18,168
Total income tax expense
Tax
Rate
2015
Tax
Rate
2014
Tax
Rate
35.0% $
(1.4)
0.8
—
(1.0)
0.1
33.5% $
9,074
(622)
299
105
—
316
9,172
35.0% $
(2.4)
1.2
0.4
—
1.2
35.4% $
14,997
(401)
215
105
—
89
15,005
35.0%
(0.9)
0.5
0.2
—
0.2
35.0%
D. Other Income Tax Information
In accordance with the provisions of ASC 740, “Accounting for Uncertainty in 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. The Corporation applied these criteria to tax positions for which the statute
of limitations remained open.
105
There were no reserves for uncertain tax positions recorded during the twelve months ended December 31, 2016, 2015 or
2014.
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 2013.
The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or
penalties were accrued in 2016.
As of December 31, 2016, the Corporation has net operating loss carry-forwards for federal income tax purposes of $1.3
million, related to the FKF merger, which are available to offset future federal taxable income through 2030. In addition,
the Corporation has alternative minimum tax credits of $567 thousand, which are available to reduce future federal regular
income taxes over an indefinite period. The Corporation has determined that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the deferred tax asset related to these amounts.
As a result of the July 1, 2010 merger with FKF, the Corporation succeeded to certain tax bad debt reserves that existed at
FKF as of June 30, 2010. As of December 31, 2016, the Corporation had unrecognized deferred income taxes of $2.5
million with respect to these reserves. These reserves could be recognized as taxable income and create a current and/or
deferred tax liability at the income tax rates then in effect if one of the following conditions occurs: (1) the Bank’s retained
earnings represented by this reserve are used for distributions, in liquidation, or for any other purpose other than to absorb
losses from bad debts; (2) the Bank fails to qualify as a bank, as provided by the Internal Revenue Code; or (3) there is a
change in federal tax law.
Note 19 - Stock –Based Compensation
A. General Information
The Corporation permits the issuance of stock options, dividend equivalents, performance stock awards, stock appreciation
rights and restricted stock awards to employees and directors of the Corporation under several plans. The performance
awards and restricted awards may be in the form of stock awards or stock units. Stock awards and stock units differ in that
for a stock award, shares of restricted stock are issued in the name of the grantee, whereas a stock unit constitutes a promise
to issue shares of stock upon vesting. The accounting for awards and units is identical. The terms and conditions of awards
under the plans are determined by the Corporation’s Compensation Committee.
Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options.
On April 25, 2007, the shareholders approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”)
under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April
28, 2010, the shareholders approved the Corporation’s “2010 Long Term Incentive Plan” (the “2010 LTIP”) under which a
total of 445,002 shares of the Corporation’s common stock were made available for award grants.
In addition to the shareholder-approved plans mentioned in the preceding paragraph, the Corporation periodically
authorizes grants of stock-based compensation as inducement awards to new employees. This type of award does not
require shareholder approval in accordance with Rule 5635(c)(4) of the Nasdaq listing rules.
RSAs and RSUs have a restriction based on the passage of time. The grant date fair value of the RSAs and RSUs is based
on the closing price on the date of the grant.
PSAs and PSUs have a restriction based on the passage of time and also have a restriction based on a performance criteria.
The performance criteria may be a market-based criteria measured by the Corporation’s total shareholder return (“TSR”)
relative to the performance of the community bank index for the respective period. The fair value of the PSAs and PSUs
based on the Corporation’s TSR relative to the performance of the community bank index is calculated using the Monte
Carlo Simulation method. The performance criteria may also be based on a non-market-based criteria such as return on
average equity. The grant date fair value of these PSUs and PSAs is based on the closing price of the Corporation’s stock
on the date of the grant. PSU and PSA grants may have a vesting percent ranging from 0% to 150%.
106
The following table summarizes the remaining shares authorized to be granted for options, RSAs and PSAs:
Balance, December 31, 2013
Shares authorized for grant under non-shareholder approved plans
Grants of RSUs
Grants of PSUs
Expiration of unexercised options
Forfeitures of RSAs and RSUs
Forfeitures of PSAs and PSUs
Balance, December 31, 2014
Shares authorized for grant under shareholder approved plans
Grants of RSUs
Grants of PSUs
Expiration of unexercised options
Non-vesting PSAs*
Forfeitures of PSAs and PSUs
Balance, December 31, 2015
Grants of RSUs
Grants of PSUs
Expiration of unexercised options
Non-vesting PSUs*
Forfeitures of PSUs
Forfeitures of RSUs
Balance, December 31, 2016
Shares
Authorized for
Grant
216,905
47,368
(16,456)
(71,184)
1,750
2,560
1,900
182,843
500,000
(24,514)
(92,474)
3,180
25,929
22,801
617,765
(33,142)
(45,346)
—
10,088
2,344
1,250
552,959
* Non-vesting PSAs and PSUs represent awards that did not meet their performance criteria, were cancelled and are
available for future grant.
B. Fair Value of Options Granted
In connection with the CBH Merger, 181,256 fully vested options, with a value of $2.3 million which had been granted to
former CBH employees and directors, were assumed by the Corporation.
No other stock options were granted or assumed during the twelve month periods ended December 31, 2016, 2015 and
2014.
C. Other Stock Option Information – The following table provides information about options outstanding:
2016
For the Twelve Months Ended December 31,
2015
2014
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Grant
Date
Fair
Value
Weighted
Average
Grant
Date
Fair
Value
Weighted
Average
Exercise
Price
Shares
Shares
Weighted
Average
Grant
Date
Fair
Value
Weighted
Average
Exercise
Price
Options outstanding,
beginning of period
Granted
Assumed in the CBH
290,853 $
—
20.88 $
—
4.85 447,966 $
— $
—
20.94 $
— $
4.75 591,086 $
— $
—
20.73 $
— $
Merger
Expired
Exercised
Options outstanding, end
—
—
(105,830) $
—
—
20.61
— 181,256 $
(3,180) $
—
7.32 (335,189) $
17.73 $
21.33 $
19.25 $
— $
—
4.84
(1,750) $
4.62 (141,370) $
— $
22.31 $
20.06 $
4.70
—
—
4.99
4.51
of period
185,023
21.04
4.88 290,853 $
20.88 $
4.85 447,966 $
20.94 $
4.75
107
The following table provides information related to options as of December 31, 2016:
Options Outstanding
Range of Exercise
Prices
$10.36 to $17.15
$17.16 to $18.30
$18.31 to $20.17
$20.18 to $22.64
$22.65 to $23.78
$23.79 to $24.27
Remaining
Contractual
Life (in
years)
Options
Outstanding
1,383
87,725
563
23,500
338
71,514
185,023
Shares
Exercisable
1,383
87,725
563
23,500
338
71,514
185,023
2.21
2.64
7.05
0.66
0.96
1.63
2.00
Options Exercisable
Remaining
Contractual
Life (in
years)
Weighted
Average
Exercise
Price*
2.21 $
2.64 $
7.05 $
0.66 $
0.96 $
1.63 $
2.00 $
12.58
18.27
18.33
22.00
23.28
24.27
21.03
*price of exercisable options
The following table provides information about unvested options:
For the Twelve Months Ended December 31,
2015
2016
2014
Weighted
Average
Grant Date
Fair Value Shares
Weighted
Average
Grant Date
Fair Value Shares
Weighted
Average
Grant Date
Fair Value
Shares
Unvested options, beginning of
period
Granted
Assumed in CBH Merger
Vested
Forfeited
Unvested options, end of period
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
— $
— $
181,256 $
(181,256) $
— $
— $
—
—
12.94
12.94
—
—
30,146 $
— $
— $
(30,146) $
— $
— $
4.42
—
—
4.42
—
—
Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:
(dollars in thousands)
Proceeds from strike price of value of options exercised
Related tax benefit recognized
Proceeds of options exercised
Intrinsic value of options exercised
For the Twelve Months Ended December 31,
2016
2015
2014
$
$
$
2,181 $
256
2,437 $
6,452 $
515
6,967 $
1,125 $
3,615 $
2,836
378
3,214
1,288
The following table provides information about options outstanding and exercisable options:
2015
As of December 31,
2014
2013
Number
Weighted average exercise price $
Aggregate intrinsic value
Weighted average contractual
Exercisable
Options
Options
Outstanding
185,023
21.03 $
447,966
20.94
$ 3,907,758 $ 3,907,758 $ 2,280,288 $ 2,280,288 $ 4,640,917 $ 4,640,917
290,853
20.88 $
185,023
21.03 $
Exercisable
Options
Options
Outstanding
290,853
20.88 $
Options
Outstanding
447,966
20.94 $
Exercisable
Options
term (in years)
2.0
2.0
2.9
2.9
2.7
2.7
As of December 31, 2016, all compensation expense related to stock options has been recognized.
108
D. Restricted Stock and Performance Stock Awards and Units
The Corporation has granted RSAs, RSUs, PSAs and PSUs under the 2007 LTIP and 2010 LTIP and in accordance with
Rule 5635(c)(4) of the Nasdaq listing standards.
RSAs and RSUs
The compensation expense for the RSAs is measured based on the market price of the stock on the day prior to the grant
date and is recognized on a straight line basis over the vesting period.
For the twelve months ended December 31, 2016, the Corporation recognized $590 thousand of expense related to the
Corporation’s RSAs and RSUs. As of December 31, 2016, there was $1.2 million of unrecognized compensation cost
related to RSAs and RSUs. This cost will be recognized over a weighted average period of 2.2 years.
The following table details the RSAs for the twelve month periods ended December 31, 2016, 2015 and 2014:
Twelve Months Ended
December 31, 2016
Twelve Months Ended
December 31, 2015
Twelve Months Ended
December 31,2014
Number of
Shares
Number of
Shares
Number of
Shares
Weighted
Average
Grant Date
Fair Value
28.58
29.67
27.14
29.12
29.57
42,802 $
33,142 $
(15,832) $
(1,250) $
58,862 $
Weighted
Average
Grant Date
Fair Value
23.17
29.83
20.73
—
28.58
Weighted
Average
Grant Date
Fair Value
19.36
28.88
18.21
21.48
23.17
54,156 $
16,456 $
(21,771) $
(2,560) $
46,281 $
46,281 $
24,514 $
(27,993) $
— $
42,802 $
Beginning balance
Granted
Vested
Forfeited
Ending balance
PSAs and PSUs
The compensation expense for PSAs and PSUs is measured based on their grant date fair value as calculated using the
Monte Carlo Simulation and is recognized on a straight-line basis over the vesting period. For the twelve months ended
December 31, 2015, there were two separate grants of PSUs. The grant date fair value of each grant was determined
independently using the Monte Carlo Simulation. Assumptions used in the Monte Carlo Simulation for the grant of 23,675
PSUs, whose performance is based on TSR, in August 2016, included expected volatility of 21.87% a risk free rate of
interest of 0.82% and a correlation co-efficient of 0.4505.
The Corporation recognized $1.1 million of expense related to the PSUs for the twelve months ended December 31, 2016.
As of December 31, 2016, there was $2.0 million of unrecognized compensation cost related to PSUs. This cost will be
recognized over a weighted average period of 2.0 years.
109
The following table details the PSAs and PSUs for the twelve month periods ending December 31, 2016, 2015 and 2014:
Twelve Months Ended
December 31, 2016
Twelve Months Ended
December 31, 2015
Twelve Months Ended
December 31, 2014
Number of
Shares
Weighted
Average
Grant Date
Fair Value
15.07
28.34
13.38
13.38
15.37
18.77
Number
of
Shares
217,318 $
92,474 $
(44,242) $
(25,929) $
(22,801) $
216,820 $
Weighted
Average
Grant Date
Fair Value
13.41
16.42
11.80
11.80
14.75
15.07
Number
of
Shares
204,980 $
71,184 $
(56,946) $
— $
(1,900) $
217,318 $
Weighted
Average
Grant Date
Fair Value
11.90
15.05
10.07
—
12.32
13.41
216,820 $
45,346 $
(56,890) $
(10,088) $
(2,344) $
192,844 $
Beginning balance
Granted
Vested
Non-vesting*
Forfeited
Ending balance
__________________________
* Non-vesting PSAs represent PSAs that did not meet their performance criteria, and were therefore cancelled. The
associated expense, however, was incurred over the vesting period.
Note 20 - Earnings per Share
The calculation of basic earnings per share and diluted earnings per share is presented below:
(dollars in thousands,
except per share data)
Numerator - Net income available to common shareholders
Denominator for basic earnings per share – Weighted average
shares outstanding*
Effect of dilutive potential common shares
Denominator for diluted earnings per share – Adjusted weighted
average shares outstanding
Basic earnings per share
Diluted earnings per share
Antidilutive shares excluded from computation of average dilutive
$
$
earnings per share
*excludes restricted stock
Year Ended December 31,
2015
2016
2014
$
36,036 $
16,754 $
27,843
16,859,623
168,499
17,488,325
267,996
13,566,239
294,801
17,028,122
2.14 $
2.12 $
17,756,321
0.96 $
0.94 $
13,861,040
2.05
2.01
—
—
—
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-Q – “Summary of Significant Accounting Policies:
Earnings per Common Share” for a discussion on the calculation of earnings per share.
Note 21 - Other Operating Income
Components of other operating income for the indicated years ended December 31 include:
(dollars in thousands)
Merchant interchange fees
Bank owned life insurance income
Commissions and fees
Safe deposit box rentals
Other investment income
Rent income
Miscellaneous other income
Other operating income
2016
2015
2014
$
$
1,381 $
908
673
382
223
163
1,138
4,868 $
1,238 $
783
867
384
248
175
1,154
4,849 $
934
315
637
389
142
164
502
3,083
110
Note 22 - Other Operating Expense
Components of other operating expense for the indicated years ended December 31 include:
(dollars in thousands)
Telephone and data lines
FDIC insurance
Temporary help and recruiting
Loan processing
Debt prepayment penalty
Travel and entertainment
Insurance
MSR amortization and impairment
Stationary and supplies
Director fees
Postage
Outsourced services
Contributions
Dues and subscriptions
Portfolio maintenance
Other taxes
Deferred compensation expense
Miscellaneous other expense
Other operating expense
Note 23 - Related Party Transactions
2016
2015
2014
$
$
1,620 $
1,616
1,522
164
—
894
788
881
518
566
551
569
957
456
391
45
664
1,505
13,707 $
1,704 $
1,447
1,362
1,285
1,131
868
770
660
623
568
540
508
468
441
385
80
15
1,643
14,498 $
1,332
1,046
1,171
723
526
725
759
532
445
443
471
432
403
368
389
51
266
1,490
11,572
In the ordinary course of business, the Bank granted loans to principal officers, directors and their affiliates. Loan activity
during 2016 and 2015 was as follows:
(dollars in thousands)
Loan balances, beginning of year
Additions
Amounts collected
Loan balances as end of year
2016
2015
11,386 $
1,227
(889 )
11,724 $
2,874
9,115
(603)
11,386
$
$
Related party deposits amounted to $6.0 million and $3.6 million at December 31, 2016 and 2015, respectively.
Note 24 - Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk
Off-Balance Sheet Risk
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of
credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated statements of financial condition. The contractual amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of financial instruments.
The Corporation’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument of
commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.
The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance
sheet financial instruments.
Commitments to extend credit, which include unused lines of credit and unfunded commitments to originate loans, are
agreements to lend to a customer as long as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Some
of the commitments are expected to expire without being drawn upon, and the total commitment amounts do not
necessarily represent future cash requirements. Total commitments to extend credit at December 31, 2016 were
111
$675.4 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 a credit evaluation of the
counterparty. Collateral varies but may include accounts receivable, marketable securities, inventory, property, plant and
equipment, residential real estate, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby
letters of credits are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of
credit is similar to that involved in extending loan facilities to customers. The collateral varies, but may include accounts
receivable, marketable securities, inventory, property, plant and equipment, and residential real estate for those
commitments for which collateral is deemed necessary. The Corporation’s obligation under standby letters of credit as of
December 31, 2016 was $12.7 million. There were no outstanding bankers’ acceptances as of December 31, 2016.
Contingencies
Legal Matters
In the ordinary course of business, the Corporation is subject to litigation, claims, and assessments that involve claims for
monetary relief. Some of these are covered by insurance. Based upon information presently available to the Corporation
and its counsel, it is the Corporation’s opinion that any legal and financial responsibility arising from such claims will not
have a material, adverse effect on its results of operations, financial condition or capital.
Indemnifications
In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan-sale
contract provisions. These provisions cover violations of representations and warranties and, under certain circumstances,
first payment default by borrowers. These indemnifications may include the repurchase of loans by the Corporation, and
are considered customary provisions in the secondary market for conforming mortgage loan sales. For the twelve months
ended December 31, 2016, 2015 and 2014, there were no make-whole requests presented to or settled by the Corporation.
As of December 31, 2016, there are no pending make-whole requests.
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. The
Corporation is aware of this concentration and attempts to mitigate this risk to the extent possible in many ways, including
the underwriting and assessment of borrower’s capacity to repay. See Note 5 – “Loans and Leases” for additional
information.
As of December 31, 2016, the Corporation had no loans sold with recourse outstanding.
Note 25 - Dividend Restrictions
The Bank is subject to the Pennsylvania Banking Code of 1965 (the “Code”), as amended, and is restricted in the amount of
dividends that can be paid to its sole shareholder, the Corporation. The Code restricts the payment of dividends by the Bank
to the amount of its net income during the current calendar year and the retained net income of the prior two calendar years,
unless the dividend has been approved by the Board of Governors of the Federal Reserve System. The Bank’s total retained
net income for the combined two years ended December 31, 2015 and 2016 was $364 thousand. During the twelve months
ended December 31, 2016, the Bank issued dividends to the Corporation totaling $16.0 million. Accordingly, the dividend
payable by the Bank to the Corporation beginning on January 1, 2017 is limited to net income not yet earned in 2017 plus
$364 thousand. The amount of dividends paid by the Bank may not exceed a level that reduces capital levels to below
levels that would cause the Bank to be considered less than adequately capitalized as detailed in Note 26 – “Regulatory
Capital Requirements”.
112
Note 26 - Regulatory Capital Requirements
A. General Regulatory Capital Information
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. Beginning in 2015, new
regulatory capital reforms, known as Basel III, issued as part of the Dodd-Frank Act began to be phased in. For more
information, refer to the “Other Information” section of Management’s Discussion and Analysis of Financial Condition and
Results of Operations in this Annual Report on Form 10-K.
B. S-3 Shelf Registration Statement and Offerings Thereunder
In March 2015, the Corporation filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) to
replace its 2012 Shelf Registration Statement, which was set to expire in April 2015. The Shelf Registration Statement
allows the Corporation to raise additional capital through offers and sales of registered securities consisting of common
stock, debt securities, warrants to purchase common stock, stock purchase contracts and units or units consisting of any
combination of the foregoing securities. Using the prospectus in the Shelf Registration Statement, together with applicable
prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, such securities in a dollar
amount up to $200 million, in the aggregate.
In addition, the Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock
Purchase Plan (the “Plan”), which allows it to issue up to 1,500,000 shares of registered common stock. The Plan allows for
the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year.
An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs,
prevailing market prices of the Corporation’s common stock and general economic and market conditions.
For the twelve months ended December 31, 2016, the Corporation did not issue any shares through the Plan. No RFWs
were approved during the twelve months ended December 31, 2016. No other sales of securities were executed under the
Shelf Registration Statement during the twelve months ended December 31, 2016.
C. Shares Issued in Mergers and Acquisitions
In connection with the acquisition of CBH, the Corporation issued 3,878,304 common shares, valued at $121.4 million, to
former shareholders of CBH. These shares were registered on an S-4 registration statement filed by the Corporation in July
2014.
D. Share Repurchases
For the twelve month periods ended December 31, 2015 and 2016, the Corporation repurchased 862,500 shares and
286,700 shares of Corporation stock, respectively, through its announced repurchase programs. In addition, it is the
Corporation’s practice to retire shares to its treasury account upon the vesting of stock awards to certain officers, in order to
cover the statutory income tax withholdings related to such vesting.
E. Regulatory Capital Ratios
As set forth in the following table, quantitative measures have been established to ensure capital adequacy ratios required
of both the Corporation and the 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. As of December 31, 2016 and 2015, 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, 2016 and 2015.
113
The Corporation’s and the Bank’s capital amounts and ratios as of December 31, 2016 and 2015 are presented in the
following table:
(dollars in thousands)
December 31, 2016
Total (Tier II) capital to risk weighted assets:
Corporation
Bank
Tier I capital to risk weighted assets:
Corporation
Bank
Tier I capital to average assets:
Corporation
Bank
Common equity Tier I to risk weighted assets
Corporation
Bank
December 31, 2015
Total (Tier II) capital to risk weighted assets:
Corporation
Bank
Tier I capital to risk weighted assets:
Corporation
Bank
Tier I capital to average assets:
Corporation
Bank
Common equity Tier I to risk weighted assets
Corporation
Bank
Actual
Minimum
to be Well
Capitalized
Amount Ratio
Amount Ratio
318,191
287,897
12.35% $
11.19% $
257,651
257,179
10.00 %
10.00 %
270,845
270,083
10.51% $
10.50% $
206,121
205,743
8.00 %
8.00 %
270,845
270,083
8.73% $
8.73% $
201,546
201,189
6.50 %
6.50 %
270,845
270,083
10.51% $
10.50% $
128,826
128,589
5.00 %
5.00 %
302,236
257,716
12.61% $
10.78% $
239,680
239,069
10.00 %
10.00 %
256,900
241,859
10.72% $
10.12% $
191,716
191,193
8.00 %
8.00 %
256,900
241,859
9.02% $
8.51% $
185,127
184,734
6.50 %
6.50 %
256,900
241,859
10.72% $
10.12% $
119,823
119,496
5.00 %
5.00 %
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
114
Note 27 - Selected Quarterly Financial Data (Unaudited)
1st
2nd
3rd
2016
(dollars in thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Other income
Other expense
Income before income taxes
Income taxes
Net income
Basic earnings per common share*
Diluted earnings per common share*
Dividend declared
(dollars in thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Other income
Other expense
Income (loss) before income taxes
Income taxes
Net income (loss)
Basic earnings (loss) per common share*
Diluted earnings per common share*
Dividend declared
Quarter
28,269 $
2,367
25,902
1,410
13,208
25,051
12,649
4,328
8,321 $
0.49 $
0.49 $
0.20 $
Quarter
Quarter
29,514 $
2,797
26,717
1,412
13,892
25,477
13,720
4,346
9,374 $
0.56 $
0.55 $
0.21 $
29,286 $
2,659
26,627
445
13,820
26,259
13,743
4,810
8,933 $
0.53 $
0.52 $
0.20 $
2015
1st
2nd
3rd
Quarter
26,754 $
1,959
24,795
569
14,765
27,429
11,562
4,068
7,494 $
0.43 $
0.42 $
0.19 $
Quarter
Quarter
26,993 $
1,923
25,070
850
14,177
25,982
12,415
4,296
8,119 $
0.46 $
0.45 $
0.19 $
27,029 $
2,196
24,833
1,200
13,350
25,403
11,580
4,084
7,496 $
0.43 $
0.42 $
0.20 $
$
$
$
$
$
$
$
$
$
$
4th
Quarter
29,922
2,932
26,990
1,059
13,119
24,958
14,092
4,684
9,408
0.56
0.55
0.21
4th
Quarter
27,766
2,337
25,429
1,777
13,668
46,951
(9,631)
(3,276)
(6,355)
(0.37)
(0.37)
0.20
*Earnings per share is computed independently for each period shown. As a result, the sum of the quarters may not equal
the total earnings per share for the year.
115
Note 28 - Parent Company-Only Financial Statements
The condensed financial statements of the Corporation (parent company only) are presented below. These statements
should be read in conjunction with the Notes to the Consolidated Financial Statements.
A. Condensed Balance Sheets
(dollars in thousands)
Assets:
Cash
Investment securities
Investments in subsidiaries, as equity in net assets
Premises and equipment, net
Goodwill
Other assets
Total assets
Liabilities and shareholders’ equity:
Borrowings
Subordinated notes
Other liabilities
Total liabilities
$
$
$
$
Common stock, par value $1, authorized 100,000,000 shares issued 21,110,968
shares and 20,931,416 shares as of December 31, 2016 and 2015, respectively,
and outstanding 16,939,715 shares and 17,071,523 shares as of December 31,
2016 and 2015, respectively
$
Paid-in capital in excess of par value
Less common stock in treasury, at cost – 4,171,253 shares and 3,859,893 shares
as of December 31, 2016 and 2015, respectively
Accumulated other comprehensive loss, net of deferred income taxes benefit
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
December 31,
2016
2015
23,663 $
400
384,751
2,288
245
1,435
412,782 $
— $
29,532
2,123
31,655 $
21,111 $
232,806
(66,950 )
(2,409 )
196,569
381,127 $
412,782 $
37,992
404
354,148
2,386
245
1,704
396,879
—
29,479
1,689
31,168
20,931
228,814
(58,144)
(412)
174,522
365,711
396,879
Twelve Months Ended December 31,
2015
2016
2014
$
$
17,718 $
2,714
20,432
2,443
17,989
17,600
35,589
(447)
36,036 $
34,234 $
2,128
36,362
2,140
34,222
(17,427 )
16,795
41
16,754 $
12,160
2,156
14,316
1,849
12,467
15,480
27,947
104
27,843
B. Condensed Statements of Income
(dollars in thousands)
Dividends from subsidiaries
Interest and other income
Total operating income
Expenses
Income before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
Income before income taxes
Income tax (benefit) expense
Net income
116
C. Condensed Statements of Cash Flows
(dollars in thousands)
Operating activities:
Net Income
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed income of subsidiaries
Depreciation and amortization
Stock-based compensation cost
Other, net
Net cash provided by operating activities
Investing Activities:
Investment in subsidiaries
Proceeds from sale investments
Acquisitions, net of cash acquired
Net cash (used in) provided by investing activities
Financing activities:
Dividends paid
Change in other borrowings
Proceeds from issuance of subordinated notes
Net (purchase of) proceeds from sale of treasury stock for deferred
compensation plans
Net purchase of treasury stock through publicly announced plans
Proceeds from issuance of common stock
Payment of contingent consideration for business combinations
Excess tax benefit from stock-based compensation
Cash payments to taxing authorities on employees' behalf from
shares withheld from stock-based compensation
Proceeds from exercise of stock options
Net cash used by financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note 29 - Segment Information
Twelve Months Ended December 31,
2015
2016
2014
$
36,036 $
16,754 $
27,843
(17,600)
151
1,713
1,000
21,300
(15,000)
—
—
(15,000)
(13,961)
—
—
(133)
(7,971)
—
—
—
(745)
2,181
(20,629)
(14,329)
37,992
23,663 $
17,427
121
1,441
508
36,251
—
16
128
144
(13,837 )
—
29,456
(128 )
(26,418 )
20
—
783
—
6,452
(3,672 )
32,723
5,269
37,992 $
(15,480 )
98
1,256
485
14,202
—
—
—
—
(10,189 )
(7,050 )
—
79
(947 )
72
—
831
—
2,836
(14,368 )
(166 )
5,435
5,269
$
FASB Codification 280 – “Segment Reporting” identifies operating segments as components of an enterprise which are
evaluated regularly by the Corporation’s Chief Operating Decision Maker, our Chief Executive Officer, in deciding how to
allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this
codification to the results of its operations.
The Corporation’s Banking segment consists of commercial and retail banking. The Banking segment is evaluated as a
single strategic unit which generates revenues from a variety of products and services. The Banking segment generates
interest income from its lending (including leases) and investing activities and is dependent on the gathering of lower cost
deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of
net interest income. The Banking segment also derives revenues from other sources including gains on the sale in available
for sale investment securities, gains on the sale of residential mortgage loans, service charges on deposit accounts, cash
sweep fees, overdraft fees, BOLI income and interchange revenue associated with its Visa Check Card offering.
The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust
administration, other related fiduciary services, custody, investment management and advisory services, employee benefits
and IRA administration, estate settlement, tax services and brokerage. Bryn Mawr Trust of Delaware and Lau Associates
are included in the Wealth Management segment of the Corporation since they have similar economic characteristics,
products and services to those of the Wealth Management Division of the Corporation. In addition, with the October 1,
2014 acquisition of PCPB and the April 1, 2015 acquisition of RJM, which was merged into PCPB, the Wealth
117
Management Division assumed responsibility for all insurance services of the Corporation. Prior to the PCPB and RJM
acquisitions, the Bank’s previous insurance subsidiary, ICBM, was reported through the Banking segment. Any
adjustments to prior year figures are immaterial and are not reflected in the table below.
The accounting policies of the Corporation are applied by segment in the following tables. The segments are presented on a
pre-tax basis.
The following table details the Corporation’s segments:
2016
Wealth
As of or for the Twelve Months Ended December 31,
2015
Wealth
2014
Wealth
(dollars in thousands)
Banking
Management Consolidated
Banking
Management Consolidated
Banking
Management Consolidated
Net interest income
Less: loan loss provision
Net interest income after loan loss
provision
Other income:
Fees for wealth management services
Service charges on deposit accounts
Loan servicing and other fees
Net gain on sale of loans
Net gain (loss) on sale of available for
sale securities
Net gain (loss) on sale of other real
$ 106,233 $
4,326
3 $
—
106,236
4,326
$ 100,124 $
4,396
3 $
—
100,127
4,396
$ 76,825 $
884
3 $
—
76,828
884
101,907
3
101,910
95,728
3
95,731
75,941
3
75,944
—
2,791
1,939
3,119
36,690
—
—
—
36,690
2,791
1,939
3,119
—
2,927
2,087
3,022
36,894
—
—
—
36,894
2,927
2,087
3,022
—
2,578
1,755
1,772
36,774
—
—
—
36,774
2,578
1,755
1,772
(77)
—
(77)
931
—
931
471
—
471)
estate owned
Insurance commissions
Other operating income
Total other income
(76)
—
5,773
13,469
Other expenses:
Salaries & wages
Employee benefits
Loss on pension plan settlement
Occupancy and bank premises
Amortization of other intangible assets
Professional fees
Other operating expenses
Total other expenses
Segment profit
Intersegment (revenues) expenses*
Pre-tax segment profit after
32,321
6,257
—
8,005
872
3,516
24,183
75,154
40,222
(396)
—
3,722
158
40,570
15,090
3,291
—
1,606
2,626
143
3,835
26,591
13,982
396
(76)
3,722
5,931
54,039
123
—
6,082
15,172
47,411
9,548
—
9,611
3,498
3,659
30,391
7,298
17,377
8,662
1,172
3,227
28,018 32,150
100,277
101,745
54,204 10,623
(422)
—
—
3,745
149
40,788
14,184
2,907
—
1,643
2,655
126
3,973
25,488
15,303
422
123
3,745
6,231
55,960
175
—
3,419
10,170
44,575
10,205
17,377
10,305
3,827
3,353
36,123
125,765
25,926
—
24,612
4,306
—
5,753
276
2,923
20,457
58,327
27,784
(372)
—
1,210
168
38,152
12,501
3,034
—
1,552
2,383
94
3,527
23,091
15,064
372
175)
1,210
3,587
48,322
37,113
7,340
—
7,305
2,659
3,017
23,984
81,418
42,848
—
eliminations
$ 39,826 $
14,378 $
54,204
$ 10,201 $
15,725 $
25,926
$ 27,412 $
15,436 $
42,848
% of segment pre-tax profit after
eliminations
73.5%
Segment assets (dollars in millions)
$ 3,377.1 $
26.5%
44.4 $
100.0%
39.3%
3,421.5
$ 2,983.2 $
60.7%
47.8 $
100.0%
64.0%
3,031.0
$ 2,197.8 $
36.0%
48.7 $
100.0%
2,246.5
•
Intersegment revenues consist of rental payments, deposit interest and management fees.
Other segment information:
Wealth Management Segment Information
(dollars in millions)
December 31,
2016
December 31,
2015
Assets under management, administration, supervision and brokerage
$
11,328.5 $
8,364.8
Note 30 – Subsequent Events
On January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal Bancshares
of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value
of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge with and into the Corporation
and RBA will merge with and into the Bank. The Acquisition, which is expected to add approximately $602 million in
loans and $630 million in deposits (based on unaudited December 31, 2016 financial information), strengthens the
Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on deposits, ranks it as
the eighth largest community bank headquartered in Pennsylvania. The Acquisition, which will expand the Corporation's
distribution network by providing entry into the new markets of New Jersey and Berks County, Pennsylvania, and a new
physical presence in Philadelphia County, Pennsylvania is expected to close during the third quarter of 2017.
118
ITEM 9.
CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
• Evaluation of Disclosure Controls and Procedures
The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s
management, including the Corporation’s Chief Executive Officer, Francis J. Leto, and Chief Financial Officer, Michael
W. Harrington, of the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2016 pursuant to Exchange Act Rule 13a-15.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s
disclosure controls and procedures as of December 31, 2016 are effective.
• Changes in Internal Control over Financial Reporting
There were no changes in the Corporation’s internal control over financial reporting during the fourth quarter of 2016
that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial
reporting.
• Design and Evaluation of Internal Control Over Financial Reporting
Pursuant to Section 404 of Sarbanes-Oxley, the following is a report of management’s assessment of the design and
effectiveness of our internal controls for the fiscal year ended December 31, 2016, and a report from our independent
registered public accounting firm attesting to the effectiveness of our internal controls:
Management’s Report on Internal Control Over Financial Reporting
The Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial
statements included in this Annual Report on Form 10-K. The consolidated financial statements and notes included in this
Annual Report on Form 10-K have been prepared in conformity with United States generally accepted accounting
principles and necessarily include some amounts that are based on Management’s best estimates and judgments.
The Corporation’s Management is responsible for establishing and maintaining effective internal control over
financial reporting that is designed to produce reliable financial statements in conformity with United States generally
accepted accounting principles. Internal control over financial reporting includes those policies and procedures that pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the Corporation; provide reasonable assurance that the transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles; provide a reasonable assurance that
receipts and expenditures of the Corporation are only being made in accordance with authorizations of Management and
directors of the Corporation; and provide a reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements. The
system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by
Management and tested for reliability through a program of internal audits. Actions are taken to correct potential
deficiencies as they are noted.
Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a
control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also,
because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system
of internal control will provide only reasonable assurance with respect to financial statement preparation.
The Corporation’s management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management, including the Corporation’s
Chief Executive Officer and Chief Financial Officer, assessed the Corporation’s system of internal control over financial
reporting as of December 31, 2016, in relation to the criteria for effective control over financial reporting as described in
“Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway
119
Commission (2013). Based on this assessment, Management concludes that, as of December 31, 2016, the Corporation’s
system of internal control over financial reporting is effective.
KPMG, LLP, which is the independent registered public accounting firm that audited the financial statements in this
Annual Report on Form 10-K, has issued an attestation report on the Corporation’s internal control over financial reporting,
which can be found under the heading “Report of Independent Registered Public Accounting Firm” at page 55, and is
incorporated by reference herein.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required for Item 10 is incorporated by reference to the sections titled “Our Board of Directors,”
“Information About our Directors,” “Information About our Executive Officers,” “Corporate Governance,” “Audit
Committee Report” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2017 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required for Item 11 is incorporated by reference to section titled “Director Compensation,”
“Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Report” and
“Compensation Committee Interlocks and Insider Participation” in the 2017 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for Item 12 is incorporated by reference to the section titled “Security Ownership of Certain
Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 2017 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for Item 13 is incorporated by reference to sections titled “Transactions with Related
Persons” and “Corporate Governance – Director Independence” in the 2017 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required for Item 14 is incorporated by reference to the section “Independent Registered Public
Accounting Firm” in the 2017 Proxy Statement.
120
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 15(a) (1 & 2) Financial Statements and Schedules
PART IV
The financial statements listed in the accompanying index to financial statements are filed as part of this
Annual Report.
Report of Independent Registered Public Accounting Firm .........................................................................................
Consolidated Balance Sheets .......................................................................................................................................
Consolidated Statements of Income .............................................................................................................................
Consolidated Statements of Comprehensive Income ...................................................................................................
Consolidated Statements of Cash Flows ......................................................................................................................
Consolidated Statement of Changes in Shareholders’ Equity ......................................................................................
Notes to Consolidated Financial Statements ................................................................................................................
Page
55
56
57
58
59
60
61
Item 15(a) (3) and (b) — Exhibits
Exhibit No. Description and References
2.1
Stock Purchase Agreement, dated as of February 18, 2011, by and between Bryn Mawr Bank Corporation and
Hershey Trust Company, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with SEC on
February 18, 2011
2.2
Amendment to Stock Purchase Agreement, dated as of May 27, 2011, by and between Hershey Trust
Company and Bryn Mawr Bank Corporation, incorporated by reference to Exhibit 2.2 of the Corporation’s 8-
K filed with the SEC on May 27, 2011
2.3
Assignment and Assumption Agreement, dated as of May 27, 2011, by and between Hershey Trust Company
and PWMG Bank Holding Company Trust, incorporated by reference to Exhibit 2.3 of the Corporation’s 8-K
filed with the SEC on May 27, 2011
2.4
Stock Purchase Agreement, dated as of February 3, 2012, by and among Bryn Mawr Bank Corporation,
Davidson Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J.
Costigan, William S. Covert, James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson,
Boston Private Financial Holdings, Inc., and Alvin A. Clay III, incorporated by reference to Exhibit 2. 1 of
the Corporation’s 8-K filed with the SEC on February 7, 2012
2.5
Purchase and Assumption Agreement, dated as of April 27, 2012, by and between The Bryn Mawr Trust
Company and First Bank of Delaware, incorporated by reference to Exhibit 2. 1 of the Corporation’s 8-K
filed with the SEC on May 2, 2012
2.6
Amendment to Stock Purchase Agreement, dates as of May 15, 2012, by and among Bryn Mawr Bank
Corporation, Davidson Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia,
Joseph J. Costigan, William S. Covert, James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C.
Wilson, Boston Private Financial Holdings, Inc., and Alvin A. Clay III, incorporated by reference to Exhibit
2. 1 of the Corporation’s 8-K filed with the SEC on May 18, 2012
2.7
2.8
Amendment to Purchase and Assumption Agreement, dated as of October 12, 2012, by and between The
Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the
Corporation’s 8-K filed with the SEC on October 18, 2012
Amendment to Purchase and Assumption Agreement, dated as of November 14, 2012, by and between The
Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the
Corporation’s 8-K filed with the SEC on November 19, 2012
121
Exhibit No. Description and References
2.9
Agreement and Plan of Merger, dated as of May 5, 2014, by and between Bryn Mawr Bank Corporation and
Continental Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed
with the SEC on May 5, 2014
2.10
Amendment to Agreement and Plan of Merger, dated as of October 23, 2014, between Bryn Mawr Bank
Corporation and Continental Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the
Corporation’s Form 8-K filed with the SEC on October 23, 2014
2.11
Stock Purchase Agreement, dated as of August 21, 2014, by and among The Bryn Mawr Trust Company,
Donald W. Parker, Edward F. Lee, and Powers Craft Parker & Beard, Inc., incorporated by reference to
Exhibit 2.1 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014
2.12
Amendment to Stock Purchase Agreement, dated as of October 1, 2014, by and among The Bryn Mawr Trust
Company, Donald W. Parker, Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by
reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on October 3, 2014
2.13
Agreement and Plan of Merger, dated as of January 30, 2017, by and between Bryn Mawr Bank Corporation
and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s
Form 8-K filed with the SEC on January 31, 2017
3.1
Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of
the Corporation’s Form 8-K filed with the SEC on November 21, 2007
3.2
Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to
Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
4.1
Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of
the Corporation’s Form 8-K filed with the SEC on November 21, 2007
4.2
Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to
Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
4.3
Subordinated Note Purchase Agreement dated July 30, 2008, incorporated by reference to Exhibit 4.4 of the
Corporation’s 10-Q filed with SEC on November 10, 2008
4.4
Subordinated Note Purchase Agreement dated August 28, 2008, incorporated by reference to Exhibit 4.5 of
the Corporation’s 10-Q filed with the SEC on November 10, 2008
4.5
Subordinated Note Purchase Agreement dated April 20, 2009, incorporated by reference to Exhibit 4.6 of the
Corporation’s 10-Q filed with the SEC on August 7, 2009
4.6
4.7
4.8
Shareholder Rights Agreement, dated as of November 16, 2012, between Bryn Mawr Bank Corporation and
Computershare Shareowner Services LLC, as Rights Agent, incorporated by reference to Exhibit 4.1 of the
Corporation’s 8-K filed with the SEC on November 16, 2012
Indenture, dated August 6, 2015, by and between Bryn Mawr Bank Corporation and U.S. Bank National
Association, as trustee, incorporated by reference to the Corporation’s Form 8-K filed with the SEC on
August 7, 2015
Forms of 4.75% Subordinated Note due 2025 (included as Exhibit A-1 and Exhibit A-2 to the Indenture filed
as Exhibit 4.1), incorporated by reference to the Corporation’s Form 8-K filed with the SEC on August 7,
2015
10.1*
Amended and Restated Supplemental Employee Retirement Plan of the Bryn Mawr Bank Corporation,
effective January 1, 1999, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-K filed
with the SEC on March 13, 2008
122
Exhibit No. Description and References
10.2**
Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long
Term Incentive Plan, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-K filed with the
SEC on March 16, 2011
10.3*
Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective
January 1, 2008 incorporated by reference to Exhibit 10.4 of the Corporation’s Form 10-K filed with the SEC
on March 16, 2009
10.4*
Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Bank Corporation, effective
January 1, 2008 incorporated by reference to Exhibit 10.5 of the Corporation’s Form 10-K filed with the SEC
on March 16, 2009
10.5*
Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Trust Company, effective January
1, 2008 incorporated by reference to Exhibit 10.6 of the Corporation’s Form 10-K filed with the SEC on
March 16, 2009
10.6*
Employment Letter Agreement, dated as of April 25, 2014, between the Corporation and Francis J. Leto,
incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on April 25, 2014
10.7*
Amendment to 2012 Restricted Stock Agreement, dated August 20, 2014, between Bryn Mawr Bank
Corporation and Fredrick C. Peters, II, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-
K filed with the SEC on August 21, 2014
10.8*
Amendment to 2013 Restricted Stock Unit Agreement, dated August 20, 2014, between Bryn Mawr Bank
Corporation and Fredrick C. Peters, II, incorporated by reference to Exhibit 10.2 to the Corporation’s Form 8-
K filed with the SEC on August 21, 2014
10.9**
Bryn Mawr Bank Corporation 2004 Stock Option Plan, incorporated by reference to Appendix A of the
Corporation’s Proxy Statement dated March 10, 2004 filed with the SEC on March 8, 2004
10.10*
Executive Change-of-Control Amended and Restated Severance Agreement, dated May 21, 2004, between
the Bryn Mawr Trust Company and Alison E. Gers, incorporated by reference to Exhibit 10.M of the
Corporation’s Form 10-K filed with the SEC on March 15, 2007
10.11*
Executive Change-of-Control Amended and Restated Severance Agreement, dated May 21, 2004, between
the Bryn Mawr Trust Company and Joseph G. Keefer, incorporated by reference to Exhibit 10.N of the
Corporation’s Form 10-K filed with the SEC on March 15, 2007
10.12*
Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), filed herewith
10.13**
Form of Key Employee Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.3 of
the Corporation’s Form 10-Q filed with the SEC on May 10, 2005
10.14**
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors, incorporated by reference to
Exhibit 10.2 of the Corporation’s Form 10-Q filed with the SEC on May 10, 2005
10.15**
Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based) – Multi-Year Vesting,
incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on September 17,
2014
10.16**
2007 Long Term Incentive Plan, effective April 25, 2007, incorporated by reference to Exhibit 10.1 of the
Corporation’s Form 10-Q filed with the SEC May 10, 2007
10.17**
Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, executed
December 8, 2008, incorporated by reference to Exhibit 10.20 of the Corporation’s Form 10-K filed with the
SEC on March 16, 2009
123
Exhibit No. Description and References
10.18
Form of Director Letter Agreement, incorporated by reference to Exhibit 10.2 to the Corporation’s Form 10-
Q filed with the SEC on August 8, 2014
10.19*
Executive Change-of-Control Amended and Restated Severance Agreement, dated November 2, 2009,
between the Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 of the
Corporation’s 8-K filed with the SEC on November 6, 2009
10.20**
Bryn Mawr Bank Corporation Amended and Restated Dividend Reinvestment and Stock Purchase Plan with
Request for Waiver Program, effective April 27, 2012, incorporated by reference to the prospectus
supplement filed with the SEC on April 27, 2012 pursuant to Rule 424(b)(2) of the Securities Act
10.21**
Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan, effective April 28, 2010, incorporated by
reference to Exhibit 10.24 of the Corporation’s Form 10-Q filed with the SEC on May 10, 2010
10.22*
Amended and Restated Transition, Consulting, Noncompetition and Retirement Agreement, dated November
25, 2008, by and among First Keystone Financial, Inc., First Keystone Bank and Donald S. Guthrie, as
assumed by Bryn Mawr Bank Corporation and The Bryn Mawr Trust Company as of July 1, 2010,
incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC on July 1, 2010
10.23**
First Keystone Financial, Inc. Amended and Restated 1998 Stock Option Plan, as assumed by Bryn Mawr
Bank Corporation, incorporated by reference to Exhibit 10.1 of the Corporation’s Post-Effective Amendment
No.1 to Form S-4 on Form S-3, filed with the SEC on July 9, 2010
10.24*
Executive Change-in-Control Severance Agreement, dated as of November 2, 2016, by and between The
Bryn Mawr Trust Company and Harry R. Madeira, Jr., incorporated by reference to Exhibit 10.4 to the
Corporation’s Form 10-Q filed with the SEC on November 4, 2016
10.25**
Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term
Incentive Plan, dated as of January 10, 2011, for Francis J. Leto, incorporated by reference to Exhibit 10.30 of
the Corporation’s Form 10-K filed with the SEC on March 16, 2011
10.26
Amendment No. 2 to Stock Purchase Agreement by and between PWMG Bank Holding Company Trust and
Bryn Mawr Bank Corporation dated September 29, 2011, filed with the SEC on Form 8-K on October 4, 2011
10.27**
10.28**
Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long
Term Incentive Plan, incorporated by reference to Exhibit 10.32 of the Corporation’s Form 10-Q filed with
the SEC on November 9, 2011
Form of Restricted Stock Agreement for Directors (Service/Performance Based) Subject to the 2010 Long
Term Incentive Plan, incorporated by reference to Exhibit 10.33 of the Corporation’s Form 10-Q filed with
the SEC on November 9, 2011
10.29*
Amendment No. 1 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank
Corporation, effective as of January 1, 2013, incorporated by reference to Exhibit 10.29 of the Corporation’s
Form 10-K filed with the SEC on March 15, 2013
10.30*
Amendment No. 2 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank
Corporation, effective as of January 1, 2013, incorporated by reference to Exhibit 10.30 of the Corporation’s
Form 10-K filed with the SEC on March 15, 2013
10.31*
Form of Letter Agreement entered into with certain executive officers of the Corporation in connection with
the curtailment of benefits under the Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan
for Select Executives, executed December 8, 2008 (SERP II), incorporated by reference to Exhibit 10.1 of the
Corporation’s Form 8-K filed with the SEC on April 4, 2013
124
Exhibit No. Description and References
10.32*
Bryn Mawr Bank Corporation Executive Deferred Compensation Plan, effective January 1, 2013,
incorporated by reference to Exhibit 10.32 of the Corporation’s Form 10-K filed with the SEC on March 14,
2014
10.33*
Retention Bonus Agreement, dated as of June 10, 2013, by and between The Bryn Mawr Trust Company and
Francis J. Leto, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC
on June 14, 2013
10.34*
Form of Restricted Stock Unit Agreement for Directors (Time/Performance Based), filed herewith
10.35**
Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based), incorporated by
reference to Exhibit 10.4 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014
10.36**
Form of Restricted Stock Unit Agreement for Directors (Service/Performance Based), incorporated by
reference to Exhibit 10.5 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014
10.37**
Form of Restricted Stock Unit Agreement – Inducement Grant, incorporated by reference to Exhibit 10.6 to
the Corporation’s Form 10-Q filed with the SEC on November 7, 2014
10.38
Second Amended and Restated Dividend Reinvestment and Stock Purchase Plan, effective April 30, 2015,
incorporated by reference to the Corporation’s prospectus supplement filed with the SEC on May 1, 2015
pursuant to Rule 424 (b) under the Securities Act of 1933, as amended
10.39
Letter Agreement and General Release, dated July 17, 2015, by and among Bryn Mawr Bank Corporation,
The Bryn Mawr Trust Company and J. Duncan Smith, incorporated by reference to the Corporation’s Form 8-
K filed with the SEC on July 17, 2015
10.40
Form of Subordinated Note Purchase Agreement, dated August 6, 2015, by and among Bryn Mawr Bank
Corporation and the Purchasers identified therein, incorporated by reference to the Corporation’s Form 8-K
filed with the SEC on August 7, 2015
10.41
Form of Registration Rights Agreement, dated August 6, 2015, by and among Bryn Mawr Bank Corporation
and Purchasers identified therein, incorporated by reference to the Corporation’s Form 8-K filed with the SEC
on August 7, 2015
10.42*
Employment Letter Agreement, dated September 8, 2015, by and among Bryn Mawr Bank Corporation, The
Bryn Mawr Trust Company and Michael W. Harrington, incorporated by reference to Exhibit 10.1 of the
Corporation’s Form 8-K filed with the SEC on September 9, 2015
125
Exhibit No. Description and References
10.43*
Executive Change-of-Control Severance Agreement, dated as of September 8, 2015, by and between The
Bryn Mawr Trust Company and Michael W. Harrington, incorporated by reference to Exhibit 10.2 to the
Corporation’s Form 8-K filed with the SEC on September 9, 2015
10.44
Amended and Restated Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan, effective April 30,
2015, incorporated by reference to Appendix A of the Corporation’s Proxy Statement on Definitive Schedule
14A filed with the SEC on March 20, 2015
10.45
Form of Restricted Stock Unit Agreement for Employees (Time-Based Cliff Vesting), incorporated by
reference to Exhibit 10.2 to the Corporation’s Form 10-Q filed with the SEC on August 7, 2015
10.46
Continental Bank Holdings, Inc. Amended and Restated 2005 Stock Incentive Plan, incorporated by reference
to Exhibit 4.3 of the Corporation’s Form S-8 filed with the SEC on January 22, 2015
10.47*
Employment Letter Agreement, dated July 7, 2016, by and between The Bryn Mawr Trust Company and
Denise Rinear, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 10-Q filed with the SEC
on November 4, 2016
10.48*
Executive Change-in-Control Severance Agreement, dated as of August 1, 2016, by and between The Bryn
Mawr Trust Company and Denise Rinear, incorporated by reference to Exhibit 10.2 to the Corporation’s 10-Q
filed with the SEC on November 4, 2016
10.49*
Employee Restrictive Covenant Agreement, dated August 1, 2016, by and between The Bryn Mawr Trust
Company and Denise Rinear, incorporated by reference to Exhibit 10.3 to the Corporation’s 10-Q filed with
the SEC on November 4, 2016
21.1
List of Subsidiaries, filed herewith
23.1
Consent of KPMG LLP, filed herewith
31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
31.2
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
99.1
Corporation’s Proxy Statement for 2017 Annual Meeting to be held on April 20, 2017, expected to be filed
with the SEC on or about March 10, 2017
126
Exhibit No.
Description and References
101.INS XBRL
Instance Document, filed herewith
101.SCH XBRL Taxonomy Extension Schema Document, filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document, filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
________________
* Management contract or compensatory plan arrangement.
** Shareholder approved compensatory plan pursuant to which the Registrant’s Common Stock may be issued to
employees of the Corporation.
Item 15(c) — Not Applicable
127
Pursuant to the requirements of section 13 or 15d of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
SIGNATURES
Bryn Mawr Bank Corporation
By
/s/ Michael W. Harrington
Michael W. Harrington
Chief Financial Officer
Date: March 10, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the Corporation and in the capacities and on the date indicated.
NAME
TITLE
DATE
/s/ Britton H. Murdoch
Britton H. Murdoch
/s/ Francis J. Leto
Francis J. Leto
Chairman and Director
March 10, 2017
President and Chief Executive Officer
(Principal Executive Officer) and Director
March 10, 2017
/s/ Michael W. Harrington
Michael W. Harrington
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 10, 2017
/s/ Michael J. Clement
Michael J. Clement
/s/ Andrea F. Gilbert
Andrea F. Gilbert
/s/ Wendell F Holland
Wendell F. Holland
/s/ Scott M. Jenkins
Scott M. Jenkins
/s/ Jerry L. Johnson
Jerry L. Johnson
/s/ David E. Lees
David E. Lees
/s/ A. John May, III
A. John May, III
/s/ Lynn B. McKee
Lynn B. McKee
/s/ Frederick C. Peters II
Frederick C. Peters
Director
Director
Director
Director
Director
Director
Director
Director
Director
128
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
Exhibit No.
Description and References
EXHIBIT INDEX
10.12*
10.34*
Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), filed herewith
Form of Restricted Stock Unit Agreement for Directors (Time/Performance Based), filed herewith
21.1
List of Subsidiaries, filed herewith
23.1
Consent of KPMG LLP, filed herewith
31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith
31.2
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
99.1
Corporation’s Proxy Statement for 2017 Annual Meeting to be held on April 20, 2017, expected to be
filed with the SEC on or about March 10, 2017, and incorporated herein by reference
101.INS XBRL Instance Document, filed herewith
101.SCH XBRL Taxonomy Extension Schema Document, filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document, filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
129
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