Section 1: 10-K (10-K)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 001-35746.
BRYN MAWR BANK
CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State of other jurisdiction of Incorporation or Organization)
23-2434506
(I.R.S. Employer Identification Number)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania
(Address of principal executive offices)
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.
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 ☐
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark 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. ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
☒ Accelerated Filer
☐ Smaller Reporting Company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act):
Yes ☐ No ☒
The aggregate market value of shares of common stock held by non-affiliates of the registrant (including fiduciary accounts administered by
affiliates) was $924,061,719 on June 30, 2018 and was based upon the last sales price at which our common stock was quoted on the NASDAQ
Stock Market on June 30, 2018.*
As of February 19, 2019, there were 20,163,136 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 18, 2019 (“2019 Proxy Statement”), as indicated
in Parts II and III, are incorporated into this Form 10-K by reference.
* The registrant does not admit by virtue of the foregoing that its officers and directors are “affiliates” as defined in Rule 405.
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Item No.
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Form 10-K
Bryn Mawr Bank Corporation
Index
Part I
Part II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 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, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, Director Independence
Principal Accounting Fees and Services
15.
Exhibits and Financial Statement Schedules
Part IV
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report and the documents incorporated by reference herein may constitute forward-looking
statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995 (the “Reform Act”). As such, they are only predictions and may involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or achievements of 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 “may,” “would,” “could,” “will,” “likely,”
“expect,” “anticipate,” “intend,” “estimate,” “plan,” “forecast,” “project,” “believe” and similar expressions are intended to identify
statements that constitute forward-looking statements. The Corporation’s actual results may differ materially from the results anticipated by the
forward-looking statements due to a variety of factors, including without limitation:
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local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those
impacts;
our need for capital;
reduced demand for our products and services, and lower revenues and earnings due to an economic recession;
lower earnings due to other-than-temporary impairment charges related to our investment securities portfolios or other assets;
changes in monetary or fiscal policy, or existing statutes, regulatory guidance, legislation or judicial decisions, including those
concerning banking, securities. insurance or taxes, that adversely affect our business, the financial services industry as a whole, the
Corporation, or our subsidiaries individually or collectively;
changes in the level of non-performing assets and charge-offs;
effectiveness of capital management strategies and activities;
changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting
requirements;
other changes in accounting requirements or interpretations;
the accuracy of assumptions underlying the establishment of provisions for loan and lease losses, estimates in the value of collateral,
and various financial assets and liabilities;
inflation, securities market and monetary fluctuations, including changes in the market values of financial assets and the stability of
particular securities markets;
changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;
prepayment speeds, loan originations and credit losses;
changes in the value of our mortgage servicing rights;
sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;
results of examinations by the Federal Reserve Board of the Corporation or its subsidiaries, including the possibility that such
regulator may, among other things, require us to increase our allowance for loan losses or to write down assets, or restrict our ability
to: engage in new products or services; engage in future mergers or acquisitions; open new branches; pay future dividends; or
otherwise take action, or refrain from taking action, in order to correct activities or practices that the Federal Reserve believes may
violate applicable law or constitute an unsafe or unsound banking practice;
variances in common stock outstanding and/or volatility in common stock price;
fair value of and number of stock-based compensation awards to be issued in future periods;
risks related to our mergers and acquisitions, including, but not limited to: reputational risks; client and customer retention risks;
diversion of management’s time for integration-related issues; integration may take longer than
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anticipated or cost more than expected; anticipated benefits of the merger or acquisition, including any anticipated cost savings or
strategic gains, may take longer or be significantly harder to achieve, or may not be realized;
deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including, without
limitation, difficulties in maintaining relationships with employees, customers, and/or suppliers may be greater than expected;
the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities portfolio;
our success in continuing to generate new business in our existing markets, as well as identifying and penetrating targeted markets and
generating a profit in those markets in a reasonable time;
our ability to continue to generate investment results for customers or introduce competitive new products and services on a timely,
cost-effective basis, including investment and banking products that meet customers’ needs;
changes in consumer and business spending, borrowing and savings habits and demand for financial services in the relevant market
areas;
extent to which products or services previously offered (including but not limited to mortgages and asset back securities) require us to
incur liabilities or absorb losses not contemplated at their initiation or origination;
rapid technological developments and changes;
technological systems failures, interruptions and security breaches, internally or through a third-party provider, could negatively
impact our operations, customers and/or reputation;
competitive pressure and practices of other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities
brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in our market areas and
elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering
banking products and services by mail, telephone, computer and the internet;
protection and validity of intellectual property rights;
reliance on large customers;
technological, implementation and cost/financial risks in contracts;
the outcome of pending and future litigation and governmental proceedings;
any extraordinary events (such as natural disasters, acts of terrorism, wars or political conflicts);
ability to retain key employees and members of senior management;
changes in relationships with employees, customers, and/or suppliers;
the ability of key third-party providers to perform their obligations to us and our subsidiaries;
our need for capital, or our ability to control operating costs and expenses or manage loan and lease delinquency rates;
other material adverse changes in operations or earnings; and
our success in managing the risks involved in the foregoing.
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All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by the factors, risks,
and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled “Risk Factors” beginning
on page 12 of this Report. All forward-looking statements included in this Report and the documents incorporated by reference herein are based
upon the Corporation’s beliefs and assumptions as of the date of this Report. The Corporation assumes no obligation to update any forward-
looking statement, whether the result of new information, future events, uncertainties or otherwise, as of any future date. In light of these risks,
uncertainties and assumptions, you should not put undue reliance on any forward-looking statements discussed in this Report or incorporated
documents.
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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 43 banking locations, six wealth management offices and two insurance and risk management
locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in
Delaware; and Mercer and Camden Counties in New Jersey. The 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 hiring 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.bmt.com by following the link, “About BMT,” followed by “Investor Relations.” The information contained on or connected to our website is
not incorporated by reference into this Annual Report on Form 10-K.
OPERATIONS
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Bryn Mawr Bank Corporation
The Corporation has no active staff as of December 31, 2018. 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, 2018, the Corporation and its subsidiaries collectively had 631 full-time and 65 part-time employees, totaling 668 full
time equivalent staff.
ACTIVE SUBSIDIARIES OF THE CORPORATION
The Corporation has four active subsidiaries which provide various services as described below. Additionally, the Corporation and the
Bank acquired certain subsidiaries in the merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the Corporation on December 15,
2017 (the “Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), pursuant to the
Agreement and Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the “Agreement”) that are not included in
the below descriptions as they are not
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integral or significant to our business. Further, in connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal
Bancshares Capital Trust I and Royal Bancshares Capital Trust II, which are discussed in more detail in Note 1, “Summary of Significant
Accounting Policies,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
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The Bryn Mawr Trust Company
The Bank is engaged in commercial and retail banking business, providing basic banking services, including the acceptance of demand,
time and savings deposits and the origination of commercial, real estate and consumer loans and other extensions of credit including leases. The
Bank also provides a full range of wealth management services including trust administration and other related fiduciary services, custody services,
investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax services, financial planning
and brokerage services. The Bank’s employees are included in the Corporation’s employment numbers above.
The Bank presently operates 43 banking locations (which include eight retirement home community locations), six wealth management
offices, and two insurance and risk management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin
Counties in Pennsylvania; New Castle County in Delaware; and Mercer and Camden Counties in New Jersey. See the section titled
“COMPETITION” later in this item for additional information.
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Lau Associates LLC
Lau Associates LLC, a SEC registered investment advisor, is an independent, family wealth office serving high net worth individuals and
families, with special expertise in planning intergenerational inherited wealth. Lau Associates LLC is headquartered in Greenville, Delaware, and is a
wholly-owned subsidiary of the Corporation.
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The Bryn Mawr Trust Company of Delaware
The Bryn Mawr Trust Company of Delaware (“BMTC-DE”) is a limited-purpose trust company located in Greenville, DE and has the ability
to be named and serve as a corporate fiduciary under Delaware law. Being able to serve as a corporate fiduciary under Delaware law is
advantageous as Delaware statutes are widely recognized as being favorable with respect to the creation of tax-advantaged trust structures, LLCs
and related wealth transfer vehicles for families and individuals throughout the United States. BMTC-DE is a wholly-owned subsidiary of the
Corporation.
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BMT Investment Advisers
BMT Investment Advisers (“BMTIA”), a Delaware statutory trust and wholly-owned subsidiary of the Corporation, was established in
May 2017. BMTIA is an SEC-registered investment adviser which serves as investment adviser to BMT Investment Funds, a Delaware statutory
trust. There is an Investment Advisory Agreement between BMT Investment Advisers and BMT Investment Funds, on behalf of the BMT Multi-
Cap Fund. The BMT Multi-Cap Fund is a broadly diversified mutual fund focused on equity investments.
ACTIVE SUBSIDIARIES OF THE BANK
The Bank has three active subsidiaries providing various services as described below:
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KCMI Capital, Inc.
KCMI Capital, Inc. (“KCMI”) is a wholly-owned subsidiary of the Bank, located in Media, Pennsylvania, which was established on
October 1, 2015. KCMI specializes in providing non-traditional commercial mortgage loans to small businesses throughout the United States.
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BMT Insurance Advisors, Inc. f/k/a Powers Craft Parker and Beard, Inc.
BMT Insurance Advisors, Inc. (“BMT Insurance Advisors”), formerly known as Powers Craft Parker and Beard, Inc. (“PCPB”) is a wholly-
owned subsidiary of the Bank, headquartered in Berwyn, Pennsylvania. BMT Insurance Advisors is a full-service insurance agency, through which
the Bank offers insurance and related products and services to its customer base. 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.
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Bryn Mawr Equipment Finance, Inc.
Bryn Mawr Equipment Finance, Inc. (“BMEF”), a wholly-owned subsidiary of the Bank, is a Delaware corporation registered to do
business in Pennsylvania. BMEF is a small-ticket equipment financing company servicing customers nationwide from its Montgomery County,
Pennsylvania location.
BUSINESS COMBINATIONS
The Corporation and its subsidiaries engaged in the following business combinations since January 1, 2014:
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Domenick & Associates (“Domenick”)
The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993
and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was
paid at closing, with three contingent cash payments, not to exceed $250 thousand each, to be payable on each of May 1, 2019, May 1, 2020, and
May 1, 2021, subject to the attainment of certain targets during the related periods.
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Royal Bancshares of Pennsylvania, Inc.
On December 15, 2017, the RBPI Merger was completed. In accordance with the Agreement, the aggregate share consideration paid to
RBPI shareholders consisted of 3,101,316 shares of the Corporation’s common stock. Shareholders of RBPI received 0.1025 shares of Corporation
common stock for each share of RBPI Class A common stock and 0.1179 shares of Corporation common stock for each share of RBPI Class B
common stock owned as of the Effective Date of the RBPI Merger, with cash-in-lieu of fractional shares totaling $7 thousand. The RBPI Merger
initially added $566.2 million of loans, $121.6 million of investments, $593.2 million of deposits, twelve new branches and a loan production office.
The acquisition of RBPI expanded the Corporation’s footprint within Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as
well as Camden and Mercer Counties in New Jersey.
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Harry R. Hirshorn & Company, Inc.
On May 24, 2017, the Bank acquired Harry R. Hirshorn & Company, Inc. (“Hirshorn”), an insurance agency headquartered in the Chestnut
Hill section of Philadelphia. Consideration totaled $7.5 million, of which $5.8 million was paid at closing, one contingent cash payment of $575
thousand was paid during the second quarter of 2018, and two contingent cash payments, not to exceed $575 thousand each, to be payable in 2019
and 2020, subject to certain conditions. The acquisition of Hirshorn expanded the Bank’s footprint into this desirable northwest corner of
Philadelphia. Immediately after acquisition, Hirshorn was merged into PCPB (now BMT Insurance Advisors).
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Robert J. McAllister Agency, Inc.
On April 1, 2015, the acquisition of Robert J. McAllister, Inc. (“RJM”), an insurance brokerage headquartered in Rosemont, Pennsylvania,
was completed. Consideration totaled $1.0 million, of which $500 thousand was paid at closing, two contingent payments of $85 thousand (out of a
maximum of $100 thousand) were paid during the second quarters of 2018 and 2016, one contingent payment of $100 thousand was paid during the
second quarter of 2017, and two remaining contingent cash payments, not to exceed $100 thousand each, will be payable in 2019 and 2020, subject
to certain conditions. Shortly after acquisition, RJM was merged into PCPB (now BMT Insurance Advisors).
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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 totaled $125.1 million, comprised of 3,878,304 shares of the
Corporation’s common stock, the assumption of options to purchase Corporation common stock valued at $2.3 million, $1.3 million for the cash-out
of certain warrants, and $2 thousand cash in lieu of fractional shares. The CBH Merger initially added $424.7 million of loans, $181.8 million of
investments, $481.7 million of deposits and ten new branches. The acquisition of CBH enabled the Corporation to expand its footprint within
Montgomery County, Pennsylvania.
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BMT Insurance Advisors, Inc. f/k/a Powers Craft Parker and Beard, Inc.
On October 1, 2014, the acquisition of PCPB, an insurance brokerage previously headquartered in Rosemont, Pennsylvania, was
completed. The consideration paid by the Corporation was $7.0 million, of which $5.4 million was paid at closing and three contingent payments, of
$542 thousand each, which were paid during the fourth quarters of 2015, 2016 and 2017. The addition enabled the Corporation to offer a full range of
insurance products to both individual and business clients. As described above, the subsequent acquisitions of RJM and Hirshorn were merged
into PCPB, which was renamed BMT Insurance Advisors. The resulting combined entity, operating from two locations, under the name BMT
Insurance Advisors, has enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients.
SOURCES OF THE CORPORATION’S REVENUE
Continuing Operations
See Note 30, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form
10-K for additional information. The Corporation had no discontinued operations in 2016, 2017 or 2018.
DESCRIPTION OF BUSINESS AND COMPETITION
The Corporation and its subsidiaries, including the Bank, compete for deposits, loans, wealth management and insurance services in
Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania, New Castle County in Delaware, and Mercer and Camden
Counties in New Jersey. The Corporation has 43 banking locations, six wealth management offices and two insurance and risk management
locations.
The markets in which the Corporation competes are highly competitive. The Corporation’s direct competition in attracting business is
mainly from commercial banks, investment management companies, savings and loan associations, trust companies and insurance agencies. The
Corporation also competes with credit unions, on-line banking enterprises, consumer finance companies, mortgage companies, insurance
companies, stock brokerage companies, investment advisory companies and other entities providing one or more of the services and products
offered by the Corporation.
The Corporation is able to compete with the other firms because of its consistent level of customer service, excellent reputation,
professional expertise, comprehensive product line, and its competitive rates and fees. However, there are several negative factors which can hinder
the Corporation’s ability to compete with larger institutions such as its limited number of locations, smaller advertising and technology budgets,
and a general inability to scale its operating platform, due to its size.
Mergers, acquisitions and organic growth through subsidiaries have contributed significantly to the growth and expansion of the
Corporation. The acquisition of Lau Associates LLC in July 2008 and the formation of BMTC-DE allowed the Corporation to establish a presence in
the State of Delaware, where it competes for wealth management business. The November 2012 acquisition of certain loan and deposit accounts and
a branch location from First Bank of Delaware enabled the Corporation to further expand its banking segment in the greater Wilmington, Delaware
area.
The Corporation’s first significant bank acquisition, the July 2010 merger with First Keystone Financial, Inc. expanded the Corporation’s
footprint significantly into Delaware County, Pennsylvania. This was followed by the January 2015 merger with CBH and the December 2017 merger
with RBPI. These bank mergers further expanded the Corporation’s reach well into the surrounding counties in Pennsylvania, including five
branches within the City of Philadelphia, and also expanded the Bank’s footprint into southern and central New Jersey.
The acquisition of the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May 2011 enabled the Bank’s
Wealth Management Division to extend into central Pennsylvania by continuing to operate the former PWMG offices located in Hershey,
Pennsylvania. The May 2012 acquisition of the Davidson Trust Company allowed the Corporation to further expand its range of services and bring
deeper market penetration in our core market area.
The October 2014 acquisition of PCPB, April 2015 acquisition of RJM, the May 2017 acquisition of Hirshorn, and the May 2018 acquisition
of Domenick enabled the Bank to expand its range of insurance solutions to both individuals as well as business clients. The Hirshorn transaction,
in particular, established a key location in the desirable northwest corner of Philadelphia, affording the Bank greater opportunity to provide
insurance and other financial solutions to both existing and potential clients.
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In October 2015, KCMI was established which enabled the Corporation to compete, on a national level, for a specialized lending market
that focuses on non-traditional small business borrowers with well-established businesses. In addition to KCMI, BMEF, which specializes in
equipment leases for small- and mid-sized businesses, also competes on a national scale.
In May 2017, BMTIA was established. BMTIA is an SEC-registered investment adviser which serves as investment adviser to BMT
Investment Funds, a Delaware statutory trust. There is an Investment Advisory Agreement between BMT Investment Advisers and BMT
Investment Funds, on behalf of the BMT Multi-Cap Fund. The BMT Multi-Cap Fund is a broadly diversified mutual fund focused on equity
investments which the Corporation’s wealth management division is able to offer as an investment choice to its client base.
SUPERVISION AND REGULATION
The Corporation and its subsidiaries, including the Bank, are subject to extensive regulation under both federal and state law. To the extent
that the following information describes statutory provisions and regulations which apply to the Corporation and its subsidiaries, it is qualified in
its entirety by reference to those statutory provisions and regulations:
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Bank Holding Company Regulation
The Corporation, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the “Act”). The Act
limits the business of bank holding companies to banking, managing or controlling banks, performing certain servicing activities for subsidiaries
and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. The Corporation and its non-
bank subsidiaries are subject to the supervision of the Federal Reserve Board and the Corporation is required to file, with the Federal Reserve
Board, an annual report and such additional information as the Federal Reserve Board may require pursuant to the Act and the regulations which
implement the Act. The Federal Reserve Board also conducts inspections of the Corporation and each of its non-banking subsidiaries.
The Act requires each bank holding company to obtain prior approval by the Federal Reserve Board before it may acquire (i) direct or
indirect ownership or control of more than 5% of the voting shares of any company, including another bank holding company or a bank, unless it
already owns a majority of such voting shares, or (ii) all, or substantially all, of the assets of any company.
The Act also prohibits a bank holding company from engaging in, or from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any company engaged in non-banking activities unless the Federal Reserve Board, by order or regulation, has found such
activities to be so closely related to banking or to managing or controlling banks as to be appropriate. The Federal Reserve Board has, by
regulation, determined that certain activities are so closely related to banking or to managing or controlling banks, so as to permit bank holding
companies, such as the Corporation, and its subsidiaries formed for such purposes, to engage in such activities, subject to obtaining the Federal
Reserve 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.
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
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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 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 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. Accordingly, the dividend
payable by the Bank to the Corporation beginning on January 1, 2019 is limited to net income not yet earned in 2019 plus the Bank’s total retained
net income for the combined two years ended December 31, 2017 and 2018 of $55.1 million. The amount of dividends paid by the Bank may not
exceed a level that reduces capital levels to below levels that would cause the Bank to be considered less than adequately capitalized. The payment
of dividends by the Bank to 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.
The law also permits banks as well as the Department of Banking to disclose formal enforcement actions initiated by the Department of
Banking, clarifies that the Department of Banking has examination and enforcement authority over subsidiaries as well as affiliates of regulated
banks and bolsters the Department of Banking’s enforcement authority over its regulated institutions by clarifying its ability to remove directors,
officers and employees from institutions for violations of laws or orders or for any unsafe or unsound practice or breach of fiduciary duty. Changes
to existing law also allow the Department of Banking to assess civil money penalties of up to $25,000 per violation.
The 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
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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 2018 was an annualized rate of 0.14
basis points. Payments of the Financing Corporation assessment during the year ended December 31, 2018 totaled $119 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
Department of Banking also imposes those requirements on the Bank. Banking regulators have authority to require higher minimum capital ratios for
an individual bank or bank holding company in view of its circumstances.
Minimum Capital Ratios: The risk-based guidelines require all banks to maintain three “risk-weighted assets” ratios. The first is a minimum
ratio of total capital (“Tier I” and “Tier II” capital) to risk-weighted assets equal to 8.00%; the second is a minimum ratio of “Tier I” capital to risk-
weighted assets equal to 6.00%; and the third is a minimum ratio of “Common Equity Tier I” capital to risk-weighted assets equal to 4.5%. Assets
are assigned to five risk categories, with higher levels of capital being required for the categories perceived as representing greater risk. In making
the calculation, certain intangible assets must be deducted from the capital base. The risk-based capital rules are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for
holding liquid assets.
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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. Management currently monitors and manages its assets and liabilities for interest rate risk, and believes its interest rate
risk practices are prudent and are in-line with industry standards. Management is not aware of any new or proposed rules or standards relating to
interest rate risk that would materially adversely affect our operations.
The “leverage” ratio rules require banks which are rated the highest in the composite areas of capital, asset quality, management, earnings,
liquidity and sensitivity to market risk to maintain a ratio of “Tier I” capital to “adjusted total assets” (equal to the bank’s average total assets as
stated in its most recent quarterly Call Report filed with its primary federal banking regulator, minus end-of-quarter intangible assets that are
deducted from Tier I capital) of not less than 4.00%.
For purposes of the capital requirements, “Tier I” or “core” capital is defined to include common stockholders’ equity and certain
noncumulative perpetual preferred stock and related surplus. “Tier II” or “qualifying supplementary” capital is defined to include a bank’s
allowance for loan and lease losses up to 1.25% of risk-weighted assets, plus certain types of preferred stock and related surplus, certain “hybrid
capital instruments” and certain term subordinated debt instruments. “Common Equity Tier I” capital is defined as the sum of common stock
instruments and related surplus net of treasury stock, retained earnings, accumulated other comprehensive income, and qualifying minority
interests.
In addition to the capital requirements discussed above, banks are required to maintain a “capital conservation buffer” above the
regulatory minimum capital requirements, which must consist entirely of common equity Tier I capital.
The capital conservation buffer has been phased-in over a four-year period, which began on January 1, 2016, as follows: the maximum
buffer was 0.625% of risk-weighted assets for 2016, 1.25% for 2017 and 1.875% for 2018, and effective as of January 1, 2019, the capital conservation
buffer is fully phased in at 2.5%.
Institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their
capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for
such actions.
The capital requirement rules, which were finalized in July 2013, implement revisions and clarifications consistent with Basel III regarding
the various components of Tier I capital, including common equity, unrealized gains and losses, as well as certain instruments that no longer qualify
as Tier I capital, some of which are being phased out over time. However, small depository institution holding companies with less than $15 billion
in total assets as of December 31, 2009 (which includes the Corporation) will be able to permanently include non-qualifying instruments that were
issued and included in Tier I or Tier II capital prior to May 19, 2010 in additional Tier I or Tier II capital until they redeem such instruments or until
the instruments mature.
The Basel III final framework provides for a number of deductions from and adjustments to Common Equity Tier 1. These include, for
example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in
non-consolidated financial entities be deducted from Common Equity Tier 1 to the extent that any one such category exceeds 10% of Common
Equity Tier 1 or all such categories in the aggregate exceed 15% of Common Equity Tier 1.
In addition, smaller banking institutions (less than $250 billion in consolidated assets) were granted an opportunity to make a one-time
election to opt out of including most elements of accumulated other comprehensive income in regulatory capital. Importantly, the opt-out excludes
from regulatory capital not only unrealized gains and losses on available-for-sale debt securities, but also accumulated net gains and losses on
cash-flow hedges and amounts attributable to defined benefit postretirement plans. The Corporation elected to opt-out, and indicated its election
on the Call Report filed after January 1, 2015.
In 2018, the federal bank regulatory agencies issued a variety of proposals and made statements concerning regulatory capital standards.
These proposals touched on a such areas as commercial real estate exposure, credit loss allowances under generally accepted accounting
principles, capital requirements for covered swap entities, among others. Public statements by key agency officials have also suggested a revisiting
of capital policy and supervisory approaches on a going-forward basis. We will be assessing the impact on us of these new regulations and
supervisory approaches as they are proposed and implemented.
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•
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 I capital ratio of 6.5%;
a Tier I capital ratio of 8% (increased from 6%);
a total capital ratio of 10% (unchanged from current rules); and
a Tier I 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 27, “Regulatory Capital Requirements,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on
Form 10-K for more information regarding the Bank’s and 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 an FHC. After the certification and declaration is filed, the FHC may engage either de
novo or through an acquisition in any activity that has been determined by the Federal Reserve Board to be financial in nature or incidental to such
financial activity. Bank holding companies may engage in financial activities without prior notice to the Federal Reserve Board if those activities
qualify under the new list in section 4(k) of the Act. However, notice must be given to the Federal Reserve Board, within 30 days after the FHC has
commenced one or more of the financial activities. The Corporation has not elected to become an FHC at this time.
Under the GLB Act, a bank subject to various requirements is permitted to engage through “financial subsidiaries” in certain financial
activities permissible for affiliates of FHC’s. However, to be able to engage in such activities a bank must continue to be “well-capitalized” and well-
managed and receive at least a “satisfactory” rating in its most recent Community Reinvestment Act examination.
•
Community Reinvestment Act and Fair Lending
The Community Reinvestment Act requires banks to help serve the credit needs of their communities, including providing credit to low
and moderate income individuals and areas. Should the Bank fail to serve adequately the communities it
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serves, potential penalties may include regulatory denials to expand branches, relocate, add subsidiaries and affiliates, expand into new financial
activities and merge with or purchase other financial institutions.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations
impose nondiscriminatory lending requirements on financial institutions. The Consumer Financial Protection Bureau (“CFPB”), the U.S. Department
of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s
performance under the Community Reinvestment Act or fair lending laws and regulations could result in a wide variety of sanctions, including
damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on
entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private
class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and future
prospects.
•
Privacy of Consumer Financial Information
The GLB Act also contains a provision designed to protect the privacy of each consumer’s financial information in a financial institution.
Pursuant to the requirements of the GLB Act, the Consumer Financial Protection Bureau has promulgated final regulations intended to better
protect the privacy of a consumer’s financial information maintained 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. Management 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
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insured financial institutions, on personal loans to their directors and officers; expedited filing of reports concerning stock transactions by a
company’s directors and executive officers; the formation of a public accounting oversight board; auditor independence; and increased criminal
penalties for violation of certain securities laws.
•
USA PATRIOT Act of 2001
The USA PATRIOT Act of 2001, which was enacted in the wake of the September 11, 2001 attacks, includes provisions designed to
combat international money laundering and advance the U.S. government’s war against terrorism. The USA PATRIOT Act and the regulations
which implement it contain many obligations which must be satisfied by financial institutions, including the Bank. Those regulations impose
obligations on financial institutions, such as the Bank, to maintain appropriate policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing and to verify the identity of their customers. The failure of a financial institution to maintain and implement
adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the financial
institution.
•
Government Policies and Future Legislation
As the enactment of the GLB Act and the Sarbanes-Oxley Act confirm, from time to time various laws are passed in the United States
Congress as well as the Pennsylvania legislature and by various bank regulatory authorities which would alter the powers of, and place restrictions
on, different types of banks and financial organizations. It is impossible to predict whether any potential legislation or regulations will be adopted
and the impact, if any, of such adoption on the business of the Corporation or its subsidiaries, especially the Bank.
The Trump Administration has indicated its intent to bring changes to the U.S. financial services industry that we cannot now predict.
Public comments by President Donald J. Trump, as well as his appointees at various federal agencies, may suggest the Administration’s 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.
•
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 I capital are restricted to
capital instruments that are considered to be Tier I capital for insured depository institutions. In addition, the proceeds of trust preferred securities
are excluded from Tier I capital unless (i) such securities are 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 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
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transaction, plus an additional 5 basis point charge to cover fraud losses. These fees are much lower than the current market rates. The regulation
only impacts banks with assets above $10 billion.
The Dodd-Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to promulgate rules revising its
assessment system so that it is based on the average consolidated total assets less tangible equity capital of an insured institution instead of
deposits. That rule took effect April 1, 2011. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks,
savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008.
Although many of the provisions of the Dodd-Frank Act are currently effective, there remain some regulations yet to be implemented. It is
therefore difficult to predict at this time what impact the Dodd-Frank Act and implementing regulations will have on 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 following list, which contains certain risks that may be unique to the
Corporation and to the banking industry, is neither all-inclusive nor are the factors in any particular order.
Risks Related to Our Business
The Corporation’s performance and financial condition may be adversely affected by regional economic conditions and real estate values.
The Bank’s loan and deposit activities are largely based in eastern Pennsylvania. As a result, the Corporation’s consolidated financial
performance depends largely upon economic conditions in this eastern Pennsylvania region. This region experienced deteriorating local economic
conditions during 2008 through 2011, and a resumption of this deterioration in the regional real estate market could harm our financial condition and
results of operations because of the geographic concentration of loans within this regional area and because a large percentage of our loans are
secured by real property. If there is further decline in real estate values, the collateral for the Corporation’s loans will provide less security. As a
result, the Corporation’s ability to recover on defaulted loans by selling the underlying real estate will be diminished, and the Bank will be more
likely to suffer losses on defaulted loans.
Additionally, a significant portion of the Corporation’s loan portfolio is invested in commercial real estate loans. Often in a commercial real
estate transaction, repayment of the loan is dependent on rental income. Economic conditions may affect the tenant’s ability to make rental
payments on a timely basis, or may cause some tenants not to renew their leases, each of which may impact the debtor’s ability to make loan
payments. Further, if expenses associated with commercial properties increase dramatically, the tenant’s ability to repay, and therefore the debtor’s
ability to make timely loan payments, could be adversely affected.
All of these factors could increase the amount of the Corporation’s non-performing loans, increase its provision for loan and lease losses
and reduce the Corporation’s net income.
Climate change, severe weather, natural disasters, acts of war or terrorism, and other external events could significantly impact our business.
Natural disasters, including severe weather events of increasing strength and frequency due to climate change, acts of war or terrorism,
and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational
services for us or our customers. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding
loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional
expenses.
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Rapidly changing interest rate environment could reduce the Corporation’s net interest margin, net interest income, fee income and net income.
Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a significant part of the Corporation’s net
income. Interest rates are key drivers of the Corporation’s net interest margin and subject to many factors beyond the control of the
Corporation. As interest rates change, net interest income is affected. Rapidly increasing interest rates in the future could result in interest expenses
increasing faster than interest income because of divergence in financial instrument maturities and/or competitive pressures. Further, substantially
higher interest rates generally reduce loan demand and may result in slower loan growth. Decreases or increases in interest rates could have a
negative effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net
interest income. Changes in interest rates might also impact the values of equity and debt securities under management and administration by the
Wealth Management Division which may have a negative impact on fee income. See the section captioned “Net Interest Income” in the MD&A
section of this Annual Report on Form 10-K for additional details regarding interest rate risk.
Economic troubles may negatively affect our leasing business.
The Corporation’s leasing business, which began operations in September 2006, consists of the nationwide leasing of various types of
equipment to small- and medium-sized businesses. Economic sluggishness may result in higher credit losses than we would experience in our
traditional lending business, as well as potential increases in state regulatory burdens such as state income taxes, personal property taxes and sales
and use taxes.
A general economic slowdown could impact Wealth Management Division revenues.
A general economic slowdown may cause current clients to seek alternative investment opportunities with other providers, which would
decrease the value of Wealth Management Division's assets under management and administration resulting in lower fee income to the Corporation.
Our ability to attract and maintain customer and investor relationships depends largely on our reputation.
Damage to our reputation could undermine the confidence of our current and potential customers and investors in our ability to provide
high-quality financial services. Such damage could also impair the confidence of our counterparties and vendors and ultimately affect our ability to
effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and
mitigating the various risks described in this report, but also on our success in identifying and appropriately addressing issues that may arise in
areas such as potential conflicts of interest, anti-money laundering, customer personal information and privacy issues, customer and other third-
party fraud, record-keeping, technology-related issues including but not limited to cyber fraud, regulatory investigations and any litigation that may
arise from the failure or perceived failure to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability
to successfully prevent third parties from infringing on our brands and associated trademarks and our other intellectual property. Defense of our
reputation, trademarks and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on
our business, financial condition, or results of operations.
If we fail to comply with legal standards, we could incur liability to our clients or lose clients, which could negatively affect our earnings.
Managing or servicing assets with reasonable prudence in accordance with the terms of governing documents and applicable laws is
important to client satisfaction, which in turn is important to the earnings and growth of our investment businesses. Failure to comply with these
standards, adequately manage these risks or manage the differing interests often involved in the exercise of fiduciary responsibilities could also
result in liability.
Provision for loan and lease losses and level of non-performing loans may need to be modified in connection with internal or external changes.
All borrowers carry the potential to default and our remedies to recover may not fully satisfy money previously loaned. We maintain an
allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which represents the
Corporation’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment
of the Corporation, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan
losses reflects the Corporation’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio
quality; present economic conditions;
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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 advance our strategic objectives by opening new branches or offices or acquiring and investing in
banks and in other complementary businesses, such as wealth advisory or insurance agencies. As a result, we may engage in negotiations or
discussions that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short
and long-term liquidity. Our acquisition activities could be material to us. For example, we could issue additional shares of common stock in a
purchase transaction, which could dilute current shareholders’ ownership interest. These activities could require us to use a substantial amount of
cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our prior or potential future acquisitions were
determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our
results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill would not
directly impact cash flow or tangible capital.
Our acquisition activities could involve a number of additional risks, including the risks of:
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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;
the time and expense required to integrate the operations and personnel of the combined businesses;
experiencing higher operating expenses relative to operating income from the new operations;
creating an adverse short-term effect on our results of operations;
losing key employees and customers as a result of an acquisition that is poorly received;
risk of significant problems relating to the conversion of the financial and customer data of the entity being acquired into the
Corporation’s financial and customer product systems; and,
potential impairment of intangible assets created in business acquisitions.
There is no assurance that we will be successful in overcoming these risks or any other problems encountered in connection with pending
or potential acquisitions. Our inability to overcome these risks could have an adverse effect on our levels of reported net income, return on average
equity and return on average assets, and our ability to achieve our business strategy and maintain our market value.
Decreased residential mortgage origination, volume and pricing decisions of competitors could affect our net income.
The Corporation originates, sells and services residential mortgage loans. Changes in interest rates and pricing decisions by our loan
competitors affect demand for the Corporation’s residential mortgage loan products, the revenue realized on the sale of loans and revenues received
from servicing such loans for others, ultimately reducing the Corporation’s net income. New regulations, increased regulatory reviews, and/or
changes in the structure of the secondary mortgage markets
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which the Corporation utilizes to sell mortgage loans may be introduced and may increase costs and make it more difficult to operate a residential
mortgage origination business.
Our mortgage servicing rights could become impaired, which may require us to take non-cash charges.
Because we retain the servicing rights on many loans we sell in the secondary market, we are required to record a mortgage servicing right
asset, which we test quarterly for impairment. The value of mortgage servicing rights is heavily dependent on market interest rates and tends to
increase with rising interest rates and decrease with falling interest rates. If we are required to record an impairment charge, it would adversely affect
our financial condition and results of operations.
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 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 management to make
estimates about matters that are uncertain.
The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting Standards Board and the
SEC, periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial
statements. The effect of such revised or new standards on our financial statements can be difficult to predict and can materially impact how we
record and report our financial condition and results of operations.
In addition, management must exercise judgment in appropriately applying many of our accounting policies and methods so they comply
with generally accepted accounting principles. In some cases, management may have to select a particular accounting policy or method from two or
more alternatives. In some cases, the accounting policy or method chosen might be reasonable under the circumstances and yet might result in our
reporting materially different amounts than would have been reported if we had selected a different policy or method. Accounting policies are
critical to fairly presenting our financial condition and results of operations and may require management to make difficult, subjective or complex
judgments about matters that are uncertain.
FASB ASU 2016-13 will result in a significant change in how we recognize credit losses and may have a material impact on our financial
condition or results of operations.
Issued in June 2016, ASU 2016-13 (Topic 326 -Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”),
eliminates the Provision for Loan and Lease Losses ("PLLL") and Allowance for Loan and Lease Losses ("ALLL") line items and establishes the
Provision for Credit Losses ("PCL") and Allowance for Credit Losses ("ACL") line items.
Under the legacy “Incurred Loss” notion, management presents an ALLL intended to represent “probable and estimable” incurred but not
yet realized credit losses on assets in scope. When management deems collection of contractual cashflows for an instrument unlikely, a specific
reserve is calculated under ASC 310-10. Management further calculates a general reserve for performing assets under ASC 450-20, using historical
loss experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not
allow for projections beyond the likely ‘emergence period’ of losses, or for forward-looking economic conditions; for example, loss contingencies in
2022 are not currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.
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In contrast, the future accounting standard requires projection of credit loss over the contract lifetime of the asset, adjusted for
prepayment tendencies. Further, management’s specific expectations for the future economic environment must be incorporated in the projection,
with loss expectations to revert to the long-run historical mean after such time as management can make or obtain a reasonable and supportable
forecast. This valuation reserve will be established in the ACL and maintained through expense (provision) in the PCL. In the event that additional
allocation is required to fund the ACL at adoption, investors will see a cumulative-effect (one-time) adjustment to retained earnings upon adoption
of the new standard.
The new CECL standard 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.
Legal proceedings to which we are subject or may become subject may have a material adverse impact on our financial position and results of
operations.
Like many banks and other financial services organizations in our industry, we are from time to time involved in various legal proceedings
and subject to claims and other legal actions related to our business activities brought by customers, employees and others. All such legal
proceedings are inherently unpredictable and, regardless of the merits of the claims, litigation is often expensive, time-consuming, disruptive to our
operations and resources, and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts and
judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial condition and how we operate our
business. Similarly, if we settle such legal proceedings, it may affect our financial condition and how we operate our business. Future court
decisions, alternative dispute resolution awards, matters arising due to business expansion, or legislative activity may increase our exposure to
litigation and regulatory investigations. In some cases, substantial non-economic remedies or punitive damages may be sought. Although we
maintain liability insurance coverage; there can be no assurance that such coverage will cover any particular verdict, judgment, or settlement that
may be entered against us, that such coverage will prove to be adequate, or that such coverage will continue to remain available on acceptable
terms, if at all. Legal proceedings to which we are subject or may become subject may have a material adverse impact on our financial position and
results of operations.
A return to recessionary conditions or a large and unexpected rise in interest rates could result in increases in our level of non-performing loans
and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.
Falling home prices and sharply reduced sales volumes, along with the collapse of the United States’ subprime mortgage industry in 2008
that followed a national home price peak in mid-2006, significantly contributed to a recession that officially lasted until June 2009, although the
effects continued thereafter. Dramatic declines in real estate values and high levels of foreclosures resulted in significant asset write-downs by
financial institutions, which caused many financial institutions to seek additional capital, to merge with other institutions and, in some cases, to fail.
A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the
markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real
estate values and sales volumes and a return to higher unemployment levels may result in higher than expected loan delinquencies, increases in our
levels of nonperforming and classified assets and a decline in demand for our products and services. A large or unexpected rise in interest rates
could materially impact consumer and business ability to repay, thus increasing our level of nonperforming loans and reducing demand for loans.
These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.
Increases in FDIC insurance premiums may adversely affect the Corporation’s earnings.
In 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 that changed the assessment base against which FDIC assessments for deposit insurance are made. Instead of FDIC
insurance assessments being based upon an insured bank’s deposits, FDIC insurance assessments are 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.
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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.
Management recognizes the need to grow both non-wholesale and wholesale funding sources to support earning asset growth and to
provide appropriate liquidity. The Corporation’s asset growth over the past few years has been supplemented by various forms of wholesale
funding which is defined as wholesale deposits (primarily wholesale certificates of deposit) and borrowed funds (Federal Home Loan Bank of
Pittsburgh (“FHLB”), Federal advances and Federal fund line borrowings). Wholesale funding at December 31, 2018 represented approximately
17.1% of total funding compared to 15.9% at December 31, 2017 and 18.0% at December 31, 2016. Wholesale funding is subject to certain practical
limits such as the FHLB’s Maximum Borrowing Capacity and the Corporation’s liquidity targets. Additionally, regulators might consider wholesale
funding beyond certain points to be imprudent and might suggest that future asset growth be reduced or halted.
In the absence of wholesale funding sources, the Corporation may need to reduce earning asset growth through the reduction of current
production, sale of assets, and/or the participating out of future and current loans or leases. This in turn might reduce future net income of the
Corporation.
The amount loaned to us is generally dependent on the value of the collateral pledged and the Corporation’s financial condition. These
lenders could reduce the percentages loaned against various collateral categories, eliminate certain types of collateral and otherwise modify or even
terminate their loan programs, particularly to the extent they are required to do so because of capital adequacy or other balance sheet concerns, or if
disruptions in the capital markets occur. Any change or termination of our borrowings from the FHLB, the Federal Reserve or correspondent banks
may have an adverse effect on our liquidity and profitability.
The capital and credit markets are volatile and could cause the price of our stock to fluctuate.
The capital and credit markets periodically experience volatility. In some cases, the markets may produce downward pressure on stock
prices and credit availability for certain issuers seemingly without regard to those issuers’ underlying financial strength. Market volatility may result
in a material adverse effect on our business, financial condition and results of operations and/or our ability to access capital. Several factors could
cause the market price for our common stock to fluctuate substantially in the future, including without limitation:
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announcements of developments related to our business, any of our competitors or the financial services industry in general;
fluctuations in our results of operations;
sales of substantial amounts of our securities into the marketplace;
general conditions in our markets or the worldwide economy;
a shortfall in revenues or earnings compared to securities analysts’ expectations;
changes in analysts’ recommendations or projections;
our announcement of new acquisitions or other projects; and
compliance with regulatory changes.
Any failure of the Corporation, the Bank or their subsidiaries 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 administrative decisions imposing requirements and restrictions on almost all aspects of our business operations and which are primarily
designed to protect consumers, depositors and the government's deposit insurance funds, and is not designed to protect shareholders. These
include, but are not limited to, the Bank Secrecy Act and anti-money laundering regulations, the USA PATRIOT Act, the 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, trust laws and regulations, and licensing and registration requirements for mortgage originators and insurance brokers. Federal and
state banking regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or
regulations by financial institutions and bank holding companies in the performance of their supervisory and enforcement duties.
Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change.
Regulations affecting banks and other financial institutions, such as the Dodd-Frank Act, are continuously reviewed and change frequently. For
instance, the Dodd-Frank Act has changed the bank regulatory framework, created an independent consumer protection bureau that has assumed
the consumer protection responsibilities of the various federal banking agencies, and established more stringent capital standards for banks and
bank holding companies. The ultimate effect of such changes cannot be predicted. While the Corporation has policies and procedures designed to
ensure compliance with the applicable laws, rule and regulations, there is risk that the Corporation and the Bank may be determined not to have
complied with applicable requirements, and any failure, even if such failure was unintentional or inadvertent, could result in adverse action to be
taken by regulators, including through formal or informal supervisory enforcement actions, and could result in the assessment of fines and
penalties. In some circumstances, additional negative consequences also may result from regulatory action, including restrictions on the
Corporation’s business activities, acquisitions and other growth initiatives. The occurrence of one or more of these events may have a material
adverse effect on our business and reputation.
There is also no assurance that laws, rules and regulations will not be proposed or adopted in the future, which could (i) make compliance
much more difficult or expensive, (ii) restrict our ability to originate, modify, broker or sell loans or accept certain deposits, (iii) restrict our ability to
foreclose on property securing loans, (iv) further limit or restrict the amount of commissions, interest or other charges earned on loans originated or
sold by us, or (v) otherwise materially and adversely affect our business or prospects for business. These risks could affect our deposit funding
and the performance and value of our loan and investment securities portfolios, which could negatively affect our financial performance and
financial condition.
Previously enacted and potential future legislation, including legislation to reform the U.S. financial regulatory system, could adversely affect
our business.
The change in President and political party controlling the Executive Branch of the Federal Government resulting from the 2016 U.S.
presidential election has brought changes to laws and regulations of the U.S. financial services industry, including the 2018 Economic Growth,
Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), and may continue to bring changes that we cannot now predict. The EGRRCPA,
which amended the Dodd-Frank Act, directed certain federal banking regulatory agencies, including the Federal Reserve, to take action to reduce
the regulatory burden on certain banks and financial institutions. Federal banking regulatory agencies are currently working on taking the actions
congressionally mandated by the EGRRCPA; however, uncertainty about the timing and scope of any such changes as well as the cost of
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complying with a new regulatory regime, may negatively impact our business, at least in the short-term, even if the long-term impact of any such
changes are positive for our business. Further, it is unknown what impact the 2018 congressional elections and change in leadership of the House
of Representatives will have on future legislation.
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 imposed 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 I 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 Volcker Rule. The EGRRCPA provided an exemption from the Volcker Rule’s restrictions for
banks with less than $10 billion in assets. The Dodd-Frank Act also contains provisions designed to limit the ability of insured depository
institutions, their holding companies and their affiliates to conduct certain swaps and derivatives activities and to take certain principal positions in
financial instruments.
Some provisions of the Dodd-Frank Act became effective immediately upon its enactment. Many provisions, however, require regulations
to be promulgated by various federal agencies in order to be implemented, some of which have been proposed by the applicable federal agencies.
The provisions of the Dodd-Frank Act may have unintended effects, which will not be clear until implementation. The changes resulting from the
Dodd-Frank Act could limit our business activities, require changes to certain of our business practices, impose upon us more stringent capital,
liquidity and leverage requirements or otherwise materially and adversely affect us. These changes may also require us to invest significant
management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements.
Failure to comply with the new requirements could also materially and adversely affect us.
The 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 (“UDAAP authority”). The potential reach of the CFPB’s broad rulemaking powers and UDAAP authority on
the operations of financial institutions offering consumer financial products or services, including the Bank, is currently unknown.
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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.
Potential losses incurred in connection with possible repurchases and indemnification payments related to mortgages that we have sold into the
secondary market may require us to increase our financial statement reserves in the future.
We engage in the origination and sale of residential mortgages into the secondary market. In connection with such sales, we make certain
representations and warranties, which, if breached, may require us to repurchase such loans or indemnify the purchasers of such loans for actual
losses incurred in respect of such loans. These representations and warranties vary based on the nature of the transaction and the purchaser’s or
insurer’s requirements, but generally pertain to the ownership of the mortgage loan, the real property securing the loan and compliance with
applicable laws and applicable lender and government-sponsored entity underwriting guidelines in connection with the origination of the loan.
While we believe our mortgage lending practices and standards to be adequate, we have settled a small number of claims we consider to be
immaterial; we may receive requests in the future, however, which could be material in volume. If that were to happen, we could incur losses in
connection with loan repurchases and indemnification claims, and any such losses might exceed our financial statement reserves, requiring us to
increase such reserves. In that event, any losses we might have to recognize and any increases we might have to make to our reserves could have a
material adverse effect on our business, financial position, liquidity, results of operations or cash flows.
Our ability to realize our deferred tax asset may be reduced as a result of the tax reform legislation enacted in late 2017, which could adversely
impact results of operation and negatively affect our financial condition.
Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction
of future occurrences. The deferred tax asset may be reduced in the future if estimates of future income or our tax planning strategies do not support
the amount of the deferred tax asset. If it is determined that a valuation allowance of its deferred tax asset is necessary, the Corporation may incur a
charge to earnings. The value of our deferred tax asset is directly related to the income tax rates in effect at the time of use. In late 2017, the U.S.
Congress passed significant legislation reforming the Internal Revenue Code known as the Tax Cuts and Jobs Act of 2017 ("Tax Reform" or the
“Tax Act”). On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Reform”), was signed into law. The Tax
Act, among other changes, reduced the U.S. federal corporate income tax rate from 35% to 21%. As a result of the Tax Act, the Corporation recorded
a $15.2 million one-time income tax charge related to the re-measurement of the Corporation’s net deferred tax asset, triggered by the Tax Act, during
the year ended December 31, 2017, and a $2.6 million tax benefit recorded during the year ended December 31, 2018 for certain discrete items
included on our 2017 tax return that was filed during the fourth quarter of 2018.
Environmental risk associated with our lending activities could affect our results of operations and financial condition.
Although we perform limited environmental due diligence in conjunction with originating loans secured by properties we believe have
environmental risk, we could be subject to environmental liabilities on real estate properties we foreclose upon and take title to in the normal course
of our business. In connection with environmental contamination, we may be held liable to governmental entities or to third parties for property
damage, personal injury, investigation and clean-up costs incurred by these parties, or we may be required to investigate or clean-up hazardous or
toxic substances at a property. The investigation or remediation costs associated with such activities could be substantial. Furthermore, we may be
subject to common law claims by third parties based on damages and costs resulting from environmental contamination even if we were the former
owner of a contaminated site. The incurrence of a significant environmental liability could adversely affect our business, financial condition and
results of operations. These risks are present even though we perform environmental due diligence on our collateral properties. Such diligence may
not reflect all current risks or threats, and unforeseen or unpredictable future events may cause a change in the environmental risk profile of a
property after a loan has been made.
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Technological systems failures, interruptions and security breaches could negatively impact our operations and reputation.
Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer
relationships, our general ledger, our deposits, and our loans. While we have established policies and procedures to prevent or limit the impact of
systems failures, interruptions, and security breaches, there can be no assurance that such events will not occur or that they will be adequately
addressed if they do. In addition, any compromise of our security systems could deter customers from using our web site and our online banking
service, which involve the transmission of confidential information. Although we rely on commonly used security and processing systems to
provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from
compromises or breaches of security.
In addition, we outsource certain of our data processing to third-party providers. If our third-party providers encounter difficulties, or if we
have difficulty in communicating with them, our ability to adequately process and account for customer transactions could be affected, and our
business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through
various other vendors and their personnel.
The occurrence of any systems failure, interruption, or breach of security could damage our reputation and result in a loss of customers
and business, could subject us to additional regulatory scrutiny, or could expose us to civil litigation and possible financial liability. Any of these
occurrences could have a material adverse effect on our financial condition and results of operations.
We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our customers and other institutions,
malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect
our business or reputation, and create significant legal and financial exposure.
Our computer systems and network infrastructure and those of third parties, on which we are highly dependent, are subject to security
risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities, or identity theft. Our business relies
on the secure processing, transmission, storage, and retrieval of confidential, proprietary, and other information in our computer and data
management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our
network, products, and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of
our network environment and are subject to their own cybersecurity risks.
We, our customers, regulators, and other third parties, including other financial services institutions and companies engaged in data
processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses,
malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on
personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security
breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of confidential, proprietary, and other
information of ours, our employees, our customers, or of third parties, damage our systems or otherwise materially disrupt our or our customers’ or
other third parties’ network access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional
resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or
incidents. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies, and other protective measures, we may
not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches.
Cyber threats are rapidly evolving, and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach
or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new
technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks
may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage
of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased
sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or
vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control
environment may be vulnerable to compromise. Additionally, the existence of cyber attacks or security breaches at third parties with access to our
data, such as vendors, may not be disclosed to us in a timely manner.
Although to date we have not experienced any material losses or other material consequences relating to technology failure, cyber attacks
or other information or security breaches, whether directed at us or third parties, there can be no assurance
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that we will not suffer such losses or other consequences in the future. As a result, cybersecurity and the continued development and enhancement
of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or
unauthorized access remain a priority.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom
we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; financial intermediaries such
as clearing agents, exchanges and clearing houses; vendors; regulators; and providers of critical infrastructure such as internet access and
electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a
technology failure, cyber attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of
one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation
interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to
be integrated, often on an accelerated basis. Any third-party technology failure, cyber attack or other information or security breach, termination or
constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand
our businesses.
Cyber attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material
consequences. Furthermore, the public perception that a cyber attack on our systems has been successful, whether or not this perception is correct,
may damage our reputation with customers and third parties with whom we do business. A successful penetration or circumvention of system
security could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and
business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third
parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines,
penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional
compliance costs, and could adversely impact our results of operations and financial condition.
Failure to meet customer expectations for technology-driven products and services could reduce demand for bank and wealth services.
Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers
competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological advances and to invest in new technology
as it becomes available. Many of our competitors have greater resources to invest in technology than we do and may be better equipped to market
new technology-driven products and services. The ability to keep pace with technological change is important, and the failure to do so on our part
could significantly reduce the number of new wealth and bank customers resulting in a material adverse impact on our business and therefore on
our financial condition and results of operations.
The Corporation is subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system
failures and errors.
Employee errors and misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation.
Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers
or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to
prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.
We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures
and errors and customer or employee fraud. Management diligently reviews and updates its internal controls over financial reporting, disclosure
controls and procedures, and corporate governance policies and procedures. Should our internal controls fail to prevent or detect an occurrence, or
if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, results of
operations and financial condition.
Attractive acquisition opportunities may not be available to us in the future which could limit the growth of our business.
We may not be able to sustain a positive rate of growth or expand our business. We expect that other banking and financial service
companies, many of which have significantly greater resources than us, will compete with us in acquiring other financial institutions if we pursue
such acquisitions. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to
various regulatory approvals. If we fail to receive the appropriate regulatory approvals for a transaction, we will not be able to consummate such
transaction which we believe to be in our best
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interests. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill and
intangibles when considering acquisition and expansion proposals. Other factors, such as economic conditions and legislative considerations, may
also impede or prohibit our ability to expand our market presence. If we are not able to successfully grow our business, our financial condition and
results of operations could be adversely affected.
The financial services industry is very competitive, especially in the Corporation’s market area, and such competition could affect our operating
results.
The Corporation faces competition in attracting and retaining deposits, making loans, and providing other financial services such as trust
and investment management services throughout the Corporation’s market area. The Corporation’s competitors include other community banks,
larger banking institutions, trust companies and a wide range of other financial institutions such as credit unions, registered investment advisors,
financial planning firms, leasing companies, government-sponsored enterprises, on-line banking enterprises, mutual fund companies, insurance
companies and other non-bank businesses. Many of these competitors have substantially greater resources than the Corporation. This is especially
evident in regard to advertising and public relations spending. For a more complete discussion of our competitive environment, see “Description of
Business and Competition” in Item 1 above. If the Corporation is unable to compete effectively, the Corporation may lose market share and income
from deposits, loans, and other products may be reduced.
Additionally, increased competition among financial services companies due to consolidation of certain competing financial institutions and
the conversion of certain investment banks to bank holding companies may adversely affect our ability to market our products and services.
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 notes, junior 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. Further, our shareholders may in the future approve the
authorization of additional classes or series of stock which may have distribution or other rights senior to the rights of our common stock, or may be
convertible into or exchangeable for, or may represent the right to receive, common 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.
From time to time the Corporation may engage in stock repurchases. Formal guidance from the Federal Reserve Board requires that bank
holding companies, where certain conditions are triggered, provide prior notice to and consult with the Federal Reserve Board or reserve bank staff
prior to implementing a stock repurchase plan. In addition to the formal guidance, the Federal Reserve Board appears to have adopted an informal
policy of requiring bank holding companies to seek a safety and soundness “non-objection” from the appropriate regulatory staff prior to
implementing a stock repurchase plan, regardless of the financial or capital position of the holding company. In some cases, examiners following
this informal policy have required the holding company to produce additional information and materials for review. Given this informal and highly
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discretionary regulatory approach, it is possible that federal regulatory examiners could withhold their non-objection to a proposed stock
repurchase plan, without regard to the Corporation’s objective data and performance.
Downgrades in U.S. government and federal agency securities could adversely affect the Corporation.
In addition to causing economic and financial market disruptions, any downgrades in U.S. government and federal agency securities, or
failures to raise the U.S. debt limit if necessary in the future, could, among other things, have a materially adverse effect on the market value of the
U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our
ability to access capital markets on favorable terms, as well as have other material adverse effects on the operation of our business and our financial
results and condition. In particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed
income markets, adversely affecting the cost and availability of funding, which could negatively affect profitability. Also, the adverse
consequences of a downgrade could extend to the borrowers of the loans the bank makes and, as a result, could adversely affect borrowers’ ability
to repay their loans.
The Corporation is dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the
Corporation’s operations and prospects.
The Corporation currently depends on the services of a number of key management personnel. The loss of key personnel could materially
and adversely affect the results of operations and financial condition. The Corporation’s success also depends in part on the ability to attract and
retain additional qualified management personnel. Competition for such personnel is strong and the Corporation may not be successful in attracting
or retaining the personnel it requires.
Risks Related to Ownership of Our Common Stock
The price of our common stock, like many of our peers, has fluctuated significantly over the recent past and may fluctuate significantly in the
future, which may make it difficult for you to resell your shares of common stock at times or at prices you find attractive.
Stock price volatility may make it difficult for holders of our common stock to resell their common stock when desired and at desirable
prices. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:
•
Inaccurate management decisions regarding the fair value of assets and liabilities acquired which could materially affect our
financial condition;
• Natural disasters, fires, and severe weather;
•
Failure of internal controls;
• Rumors or erroneous information;
• Reliance on other companies to provide key components of our business processes;
• Meeting capital adequacy standards and the need to raise additional capital in the future if needed, including through future sales
of our common stock;
• Actual or anticipated variations in quarterly or annual results of operations;
• Recommendations by securities analysts;
•
Failure of securities analysts to cover, or continue to cover, us;
• Operating and stock price performance of other companies that investors deem comparable to us;
• News reports relating to trends, concerns and other issues in the financial services industry, including the failures of other
financial institutions in the current economic downturn;
•
Perceptions in the marketplace regarding us and/or our competitors;
• Departure of our management team or other key personnel;
• New technology used, or services offered, by competitors;
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•
•
•
Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving
us or our competitors;
Failure to integrate acquisitions or realize anticipated benefits from acquisitions;
Existing or increased regulatory and compliance requirements, changes or proposed changes in laws or regulations, or differing
interpretations thereof affecting our business, or enforcement of these laws and regulations;
• Governmental investigations and actions;
• Changes in government regulations or restructuring of government sponsored enterprises such as Fannie Mae and Freddie Mac;
• New litigation or changes in existing litigation; and
• Geopolitical conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or
recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results as evidenced by
the current volatility and disruption of capital and credit markets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company’s headquarters are located at 801 Lancaster Ave, Bryn Mawr, Pennsylvania. As of December 31, 2018, the Corporation operates
banking locations, including retirement home community locations, wealth management offices, insurance and risk management locations, and
administrative offices in the following counties: Montgomery (14 leased, 7 owned), Chester (6 leased, 2 owned), Delaware (7 leased, 5 owned),
Philadelphia (3 leased, 3 owned), and Dauphin (1 leased) Counties in Pennsylvania; New Castle County in Delaware (2 leased); and Mercer (2
leased) and Camden (1 leased) Counties in New Jersey. Management believes the current facilities are suitable for their present and intended
purposes. For additional detail regarding our properties and equipment, See Note 6, “Premises and Equipment,” in the accompanying Notes to the
Consolidated Financial Statements in this Annual Report on Form 10-K.
Business locations and hours are available on the Corporation’s website at www.bmt.com
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is set forth in the “Legal Matters” discussion in Note 24, “Financial Instruments with Off-Balance
Sheet Risk, Contingencies and Concentration of Credit Risk,” in the accompanying Notes to the Consolidated Financial Statements in this Annual
Report on Form 10-K, which is included in Item 8 of this Report, and which is incorporated herein by reference in response to this Item.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
The Corporation’s common stock is traded on the NASDAQ Stock Market under the symbol BMTC. As of February 19, 2019, there were 851
holders of record of the Corporation’s common stock.
• 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, 2018, 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, 2013, in our common stock and the comparison groups and assumes the reinvestment
of all cash dividends prior to any tax effect and retention of all stock dividends.
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Table of Contents
Five Year Cumulative Return Summary
As of December 31,
Bryn Mawr Bank Corporation
NASDAQ Community Bank
Index
NASDAQ Market Index
SNL Bank and Thrift
SNL Mid-Atlantic Bank
$
$
$
$
$
2013
2014
2015
2016
2017
2018
100.00
$
106.39 $
100.25 $
151.39
$
162.00
$
128.81
100.00
100.00
100.00
100.00
$
$
$
$
104.66 $
114.75 $
111.63 $
108.94 $
114.65 $
122.74 $
113.89 $
113.03 $
159.10
133.62
143.78
143.67
$
$
$
$
163.19
173.22
169.07
176.08
$
$
$
$
138.83
168.30
140.45
150.45
• Equity Compensation Plan Information
The information set forth under the caption “Equity Plan Compensation Information” in the 2019 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 20, “Stock-Based Compensation,” in the
accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
•
Issuer Purchases of Equity Securities
The following tables present the repurchasing activity of the Corporation during the fourth quarter of 2018:
Shares Repurchased in the 4th Quarter of 2018
Period
October 1, 2018 – October 31, 2018
November 1, 2018 – November 30, 2018
December 1, 2018 – December 31, 2018
Total
Total Number of Shares
Purchased(1)(2)
45,009
57,026
38,168
140,203
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs(3)
44,150
57,026
33,845
135,021
Average Price
Paid Per Share
39.33
39.77
36.87
38.84
$
$
$
$
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs
130,887
73,861
40,016
(1) On December 31, 2018, 1,282 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.
(2) Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation or Bank as follows: 309
shares on October 1, 2018; 550 shares on October 5, 2018; 899 shares on December 1, 2018; and 2,142 shares on December 15, 2018.
(3) On August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000
shares of the Corporation’s common stock, at an aggregate purchase price not to exceed $40 million. There is no expiration date on the 2015 Program and the
Corporation has no plans for an early termination of the 2015 Program. All share repurchases under the 2015 Program were accomplished in open market
transactions. As of December 31, 2018, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 40,016.
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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
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net Income
Per Share Data
Weighted-average shares outstanding
Dilutive potential common stock
Adjusted weighted-average shares
Earnings per common share:
Basic
Diluted
Dividends paid or accrued
Dividends paid or accrued 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
Noninterest expense to net interest income and
noninterest income
Noninterest income to net interest income and
noninterest 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
$
$
$
$
$
$
$
$
2018
181,055
31,584
149,471
7,193
142,278
75,982
140,303
77,957
14,165
63,792
$
$
As of or for the Year Ended December 31,
2015
2016
2017
2014
129,559
14,432
115,127
2,618
112,509
59,132
114,395
57,246
34,230
23,016
$
$
116,991
10,755
106,236
4,326
101,910
53,968
101,674
54,204
18,168
36,036
$
$
108,542
8,415
100,127
4,396
95,731
55,785
125,590
25,926
9,172
16,754
$
$
82,906
6,078
76,828
884
75,944
48,223
81,319
42,848
15,005
27,843
20,234,792
155,375
20,390,167
17,150,125
248,798
17,398,923
16,859,623
168,499
17,028,122
17,488,325
267,996
17,756,321
13,566,239
294,801
13,861,040
3.15
3.13
0.94
$
$
$
1.34
1.32
0.86
$
$
$
2.14
2.12
0.82
$
$
$
0.96
0.94
0.78
$
$
$
2.05
2.01
0.74
29.84 %
64.2 %
38.3 %
81.3 %
36.1 %
20,163,816
28.01
17.75
$
$
20,161,395
26.19
16.02
$
$
16,939,715
22.50
15.11
$
$
17,071,523
21.42
13.89
$
$
13,769,336
17.83
13.59
3.80 %
1.47 %
11.78 %
3.69 %
0.67 %
5.76 %
3.76 %
1.16 %
9.75 %
3.75 %
0.57 %
4.49 %
3.93 %
1.32 %
11.56 %
62.2 %
65.6 %
63.5 %
80.6 %
65.0 %
33.7 %
12.44 %
33.9 %
11.69 %
33.7 %
11.90 %
35.8 %
12.68 %
38.6 %
11.38 %
4,652,485
4,087,781
564,704
4,216,888
3,427,154
753,628
184,012
23,455
3,599,087
427,847
$
28
$
$
$
4,449,720
3,921,601
528,119
4,039,763
3,285,858
701,744
179,889
25,966
3,373,798
496,837
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
Table of Contents
Wealth assets under management, administration,
supervision and brokerage
Capital Ratios
Tier I leverage ratio (Tier I capital to total quarterly
average assets)
Tier I capital to risk weighted assets
Total regulatory capital to risk weighted assets
Asset quality
Allowance as a percentage of portfolio loans and
leases
Non-performing loans and leases as a % of portfolio
loans and leases
13,429,544
12,968,738
11,328,457
8,364,805
7,699,908
9.06%
10.92%
14.30%
10.10%
10.42%
13.92%
8.73%
10.51%
12.35%
9.02%
10.72%
12.61%
0.57%
0.53%
0.69%
0.70%
0.37%
0.26%
0.33%
0.45%
9.54%
12.00%
12.87%
0.88%
0.61%
Information related to business combinations and accounting changes may be found under the caption “Nature of Business” at Note 1,
“Summary of Significant Accounting Policies,” and Note 2, “Recent Accounting Pronouncements,” respectively, in the accompanying Notes to the
Consolidated Financial Statements in this Annual Report on Form 10-K.
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Table of Contents
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 43 banking locations, six wealth management offices and two insurance and risk management locations in the
following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in Delaware; and
Mercer and Camden Counties in New Jersey. The common stock of 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 ten acquisitions:
• Domenick & Associates (“Domenick”) - May 1, 2018
• Royal Bancshares of Pennsylvania, Inc. ("RBPI") - December 15, 2017 (the "RBPI Merger")
• Harry R. Hirshorn & Company, Inc. ("Hirshorn") - May 24, 2017
• Robert J. McAllister Agency, Inc. ("RJM") - April 1, 2015
• Continental Bank Holdings, Inc. ("CBH") - January 1, 2015 (the CBH Merger)
•
•
• Davidson Trust Company ("DTC") - May 15, 2012
•
•
Powers Craft Parker and Beard, Inc. ("PCPB") - October 1, 2014
First Bank of Delaware ("FBD") - November 17, 2012
The Private Wealth Management Group of the Hershey Trust Company ("PWMG") - May 11, 2011
First Keystone Financial, Inc. ("FKB") - July 1, 2010
For a more complete discussion regarding certain of these acquisitions, see Item 1 – Business – Business Combinations beginning at page 3 in this
Form 10-K.
Results of Operations
The following is management’s discussion and analysis of the significant changes in the financial condition, results of operations, capital resources
and liquidity presented in the accompanying Consolidated Financial Statements. The Corporation’s consolidated financial condition and results of
operations are comprised primarily of the Bank’s financial condition and results of operations. Current performance does not guarantee, and may
not be indicative of, similar performance in the future. For more information on the factors that could affect performance, see “Special Cautionary
Notice Regarding Forward Looking Statements” immediately following the index at the beginning of this document.
The geographic information required by Item 101(d) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, is
impracticable for the Corporation to calculate; however, the Corporation does not believe that a material amount of revenue in any of the last three
years was attributable to customers outside of the United States, nor does it believe that a material amount of its long-lived assets, in any of the
past three years, was located outside of the United States.
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Critical Accounting Policies, Judgments and Estimates
The accounting and reporting policies of the Corporation 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' consolidated financial statements to the current year’s presentation. In preparing the Consolidated Financial Statements,
management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance
sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ from these estimates.
The Allowance for Loan and Lease Losses (the “Allowance”)
The Allowance involves a higher degree of judgment and complexity than other significant accounting policies. The Allowance is estimated with
the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses present in the loan portfolio
as of the reporting date. Management’s determination of the adequacy of the Allowance is based on frequent evaluations of the loan and lease
portfolio and other relevant factors. Consideration is given to a variety of factors in establishing the estimate. Quantitative factors in the form of
historical charge-off rates by portfolio segment are considered. In connection with these quantitative factors, management establishes what it
deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 2018, management utilized a five-year LBP, which
it believes adequately captures the trends in charge-offs. In addition, management develops an estimate of a loss emergence period (“LEP”) for each
segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan.
As of December 31, 2018, management utilized a two-year LEP for its commercial loan segments and a one-year LEP for its consumer loan segments
based on analyses of actual charge-offs tracked back in time to the triggering event for the eventual loss. In addition, various qualitative factors are
considered, including specific terms and conditions of loans and leases, underwriting standards, delinquency statistics, industry concentration,
overall exposure to a single customer, adequacy of collateral, the dependence on collateral, and results of internal loan review, including a
borrower’s perceived financial and management strengths, the amounts and timing of the present value of future cash flows, and the access to
additional funds. It should be noted that this evaluation is inherently subjective as it requires material estimates, including, among others, expected
default probabilities, the amounts and timing of expected cash flows on impaired loans and leases, the value of collateral, estimated losses on
consumer loans and residential mortgages and the relevance of historical loss experience. The process also considers economic conditions and
inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from
management’s estimates, additional provision for loan and lease losses (the “Provision”) may be required that would adversely impact earnings in
future periods. See the section of this document titled Asset Quality and Analysis of Credit Risk beginning at page 43 for additional information.
Fair Value Measurement of Investment Securities Available-for-Sale and Assessment for Impairment of Certain Investment Securities
Management 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 Consolidated 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
Consolidated Financial Statements. As of December 31, 2018, the Corporation’s investment portfolio was primarily comprised of investment
securities classified as available for sale.
Valuation of Goodwill and Intangible Assets
Goodwill and intangible assets have been recorded on the books of the Corporation in connection with its acquisitions. Management completes a
goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment.
Management also reviews other intangible assets with finite lives for impairment if events and circumstances indicate that the carrying value may
not be recoverable. There was no goodwill or intangible asset impairment recorded during the years ended December 31, 2018, 2017 or 2016. There
was no impairment of identifiable intangible assets during the years ended December 31, 2018, 2017 or 2016. 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 accompanying Notes to the
Consolidated Financial Statements in this Annual Report on Form 10-K. The Corporation’s
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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
In 2018, the U.S. economy grew approximately 3%, which exceeded the 2% trend growth rate witnessed following the Great Recession of 2008-2009.
We expect that the U.S. economic growth will continue in 2019, albeit at a slower pace relative to 2018, as the effects of stimulus measures (tax cuts,
deregulation, fiscal spending) enacted at the end of 2017 and early in 2018 begin to wane. We would not be surprised to see growth rates start
heading lower toward the 2% trend growth rate, especially in the second half of 2019.
The economy is showing late cycle attributes such as a flattening of the yield curve, more restrictive monetary policy, and tight labor market
conditions. However, given that consumer spending, which accounts for roughly 70% of the U.S. economy, is showing no visible signs of abating.
The Federal Reserve Board (“FRB”) was much more active in raising base interest rates during 2018, increasing the Fed Funds Target Rate 4 times.
In contrast, following seven years of stable rates, the FRB raised the Target Rate higher 5 times between late 2015 and through 2017. Recent remarks
from the Fed have been much less hawkish. Financial markets seem to think the FRB will proceed with caution when conducting monetary policy
going forward given the sharp rise in equity prices during January 2019.
Unlike in 2017, which delivered favorable investment results across a wide assortment of different asset classes (stocks, bonds, commodities, etc.),
2018 was much more challenging for investors. A combination of rising rates, especially on the short end of the yield curve, and rising equity market
volatility, resulted in most asset classes delivering flat-to-negative returns in 2018.
Executive Overview
The following Executive Overview provides a summary-level review of the results of operation for 2018 compared to 2017 and 2017 compared to
2016 as well as a comparison of the December 31, 2018 balance sheet to the December 31, 2017 balance sheet. More detailed information regarding
these comparisons can be found in the sections that follow.
2018 Compared to 2017
Income Statement
The Corporation reported net income attributable to Bryn Mawr Bank Corporation of $63.8 million, or $3.13 diluted earnings per share for the year
ended December 31, 2018, increases of $40.8 million and $1.81, respectively, as compared to net income attributable to Bryn Mawr Bank Corporation
of $23.0 million, or $1.32 diluted earnings per share, for the year ended December 31, 2017. Return on average equity ("ROE") and return on average
assets ("ROA") for the year ended December 31, 2018, were 11.78% and 1.47%, respectively, as compared to 5.76% and 0.67%, respectively, for the
same period in 2017. Contributing to the net income increase were increases of $34.4 million and $16.9 million in net interest income and noninterest
income, respectively, and a decrease of $20.1 million in income tax expense, offset by increases of $25.9 million and $4.6 million in noninterest
expense and Provision, respectively.
Tax-equivalent net interest income of $149.9 million for the year ended December 31, 2018 increased $34.0 million as compared to $115.9 million for
the year ended December 31, 2017. The increase primarily related to the increase of $47.6 million in tax-equivalent interest and fees on loans and
leases partially offset by the increase of $11.9 million in interest expense on deposits. Average loans and leases for the year ended December 31,
2018 increased $691.3 million from the same period in 2017 and experienced a 48 basis point increase in tax-equivalent yield. The increase in average
loans and leases was partially related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $566.2
million, as well as organic loan growth between the periods. Average interest-bearing deposits for the year ended December 31, 2018 increased
$604.0 million from the same period in 2017 and experienced a 36 basis point increase in rates paid. The increase in average interest-bearing deposits
was partially related to the interest-bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million.
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The Provision of $7.2 million for the year ended December 31, 2018 increased $4.6 million as compared to $2.6 million for the year ended
December 31, 2017. Primary contributors to the increased Provision were the $2.7 million increase in net loan and lease charge-offs as well as the
additional Allowance associated with increased loan volume.
Noninterest income of $76.0 million for the year ended December 31, 2018 increased $16.9 million, or 28.5%, as compared to $59.1 million for the year
ended December 31, 2017. Other operating income increased $6.2 million, primarily due to the $4.0 million increase in recoveries of purchase
accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. Fees for wealth management
services increased $3.6 million, primarily related to the $460.8 million increase in wealth assets under management, administration, supervision and
brokerage from $12.97 billion at December 31, 2017 to $13.43 billion at December 31, 2018. Capital markets revenue increased $2.5 million, primarily
related to a full year of operations for our capital markets group, which was formed during the second quarter on 2017. Insurance commissions
increased $2.2 million partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in addition to organic growth.
Noninterest expense of $140.3 million for the year ended December 31, 2018 increased $25.9 million, or 22.6%, as compared to $114.4 million for the
year ended December 31, 2017. These increases were largely due to the additional expenses associated with the staff and facilities assumed in the
RBPI Merger and to a lesser extent, recruiting efforts of certain key leadership positions as well as increases in our incentive accruals.
Balance Sheet
Asset quality as of December 31, 2018 remains stable, with nonperforming loans and leases comprising 0.37% of portfolio loans and leases as
compared to 0.26% of portfolio loans and leases as of December 31, 2017. The Allowance of $19.4 million was 0.57% of portfolio loans and leases as
of December 31, 2018, as compared to $17.5 million, or 0.53% of portfolio loans and leases at December 31, 2017.
Total portfolio loans and leases of $3.43 billion as of December 31, 2018 increased $141.3 million, or 4.3%, from $3.29 billion as of December 31, 2017.
Increases of $134.1 million, $35.5 million, $29.1 million, and $8.7 million in commercial mortgages, residential mortgages, leases and consumer loans,
respectively, were offset by decreases of $31.4 million, $23.7 million, and $10.9 million in construction loans, commercial and industrial loans, and
home equity loans and lines, respectively.
Investment securities available for sale of $737.4 million as of December 31, 2018 increased $48.2 million, or 7.0%, from $689.2 million as of December
31, 2017. Increases of $44.8 million, $14.9 million, and $2.6 million in U.S. government and agency securities, mortgage-backed securities, and
collateralized mortgage obligations, respectively, were partially offset by decreases of $10.0 million and $3.5 million in state & political subdivision
securities and other investments, respectively.
Total deposits of $3.60 billion as of December 31, 2018 increased $225.3 million, or 6.7%, from $3.37 billion as of December 31, 2017. Increases of
$183.4 million, $153.3 million, and $10.5 million in interest-bearing demand accounts, wholesale time deposits, and retail time deposits, respectively,
were partially offset by decreases of $91.5 million, $23.2 million, and $7.2 million in savings accounts, noninterest-bearing demand accounts, and
wholesale non-maturity deposits, respectively.
Wealth Assets
Wealth assets under management, administration, supervision and brokerage of $13.43 billion as of December 31, 2018
increased $460.8 million, or 3.55%, from $12.97 billion as of December 31, 2017. The increase in wealth assets was comprised of a $581.3 million
increase in fixed rate flat-fee account balances, offset by a $120.5 million decrease in account balances whose fees are based on market value.
2017 Compared to 2016
Income Statement
The Corporation reported net income attributable to Bryn Mawr Bank Corporation of $23.0 million, or $1.32 diluted earnings per share for the year
ended December 31, 2017, decreases of $13.0 million and $0.80, respectively, as compared to net income attributable to Bryn Mawr Bank Corporation
of $36.0 million, or $2.12 diluted earnings per share, for the year ended December 31, 2016. ROE and ROA for the year ended December 31, 2017, were
5.76% and 0.67%, respectively, as compared to 9.75% and 1.16%, respectively, for the same period in 2016.
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The primary cause for the $13.0 million decrease in net income was the one-time income tax charge of $15.2 million recorded for the re-measurement
of the Corporation’s net deferred tax asset. The re-measurement was required as a result of the passage of Tax Reform signed into law on December
22, 2017, which lowered the top federal corporate income tax rate from 35% to 21%. In addition to this one-time tax charge, due diligence, merger-
related and merger integration costs increased by $6.1 million year over year primarily related to the RBPI Merger.
Tax-equivalent net interest income of $115.9 million for the year ended December 31, 2017 increased $9.0 million as compared to $106.9 million for the
year ended December 31, 2016. The increase primarily related to the increases of $10.5 million and $2.2 million in tax-equivalent interest and fees on
loans and leases and tax-equivalent interest income on available for sale investment securities, respectively, partially offset by an increase of $2.9
million in interest expense on deposits. Average loans and leases for the year ended December 31, 2017 increased $235.5 million from the same
period in 2016 with yields remaining relatively flat. Average interest-bearing deposits for the year ended December 31, 2017 increased $179.8 million
from the same period in 2016 and experienced a 12 basis point increase in rates paid.
The Provision of $2.6 million for the year ended December 31, 2017 decreased $1.7 million as compared to $4.3 million for the year ended
December 31, 2016. Slightly lower net loan and lease charge-offs for 2017 as compared to 2016, combined with stable credit quality and
improvements in certain qualitative indicators which factor into the calculation of the Allowance, accounted for the decrease in Provision.
Noninterest income of $59.1 million for the year ended December 31, 2017 increased $5.2 million, or 9.6%, as compared to $54.0 million for the year
ended December 31, 2016. An increase of $2.0 million in fees for wealth management services resulted as wealth assets under management,
administration, supervision and brokerage increased $1.64 billion from December 31, 2016 to December 31, 2017. Insurance commissions increased
$867 thousand for the year ended December 31, 2017 as compared to the same period in 2016, due to the May 2017 acquisition of Hirshorn Boothby.
Revenue from our capital markets initiative, which was launched in the second quarter of 2017, contributed $2.4 million to noninterest income for the
twelve-months ended December 31, 2017. These increases were partially offset by a $607 thousand decrease in net gain on sale of loans.
Noninterest expense of $114.4 million for the year ended December 31, 2017 increased $12.7 million, or 12.5%, as compared to $101.7 million for the
year ended December 31, 2016. The increase was largely related to a $6.1 million increase in due diligence and merger-related expenses primarily
associated with the RBPI Merger. A $5.8 million increase in salaries and wages was largely due to staffing increases from our capital markets
initiative, the Hirshorn Boothby acquisition and the Princeton wealth management office and to a lesser extent, the December 15, 2017 RBPI Merger.
Annual salary and wage increases and increases in incentive compensation also contributed to the increase.
Components of Net Income
Net income is comprised of five major elements:
• Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid
on deposits and borrowed funds;
• Provision for Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans
and leases;
• Noninterest Income, which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of
residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit
services;
• Noninterest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional
fees, due diligence, merger-related and merger integration expenses, and other operating expenses; and
Income Tax Expense, which include state and federal jurisdictions.
•
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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 average balances (volume) and the change in average interest rates (rate) of tax-equivalent net interest income for the years 2018 as
compared to 2017, and 2017 as compared to 2016. The change in interest income / expense due to both volume and rate has been allocated to
changes due to volume.
(dollars in thousands)
increase/(decrease)
Interest income:
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
Junior subordinated debentures
Total interest expense
Interest differential
$
2018 Compared to 2017
2017 Compared to 2016
Volume
Rate
Total
Volume
Rate
Total
Year Ended December 31,
18 $
2,131
(215)
31,524
33,458
792
695
2,147
552
(1,096)
3,203
945
7,238
26,220 $
$
72
1,494
(14)
16,109
17,661
4,779
2,261
1,130
1,450
253
(256)
297
9,914
7,747
$
$
90
3,625
(229)
47,633
51,119
5,571
2,956
3,277
2,002
(843)
2,947
1,242
17,152
33,967
$
(35) $
1,427
(216)
10,733
11,909
161
186
500
226
(971)
182
46
330
11,579
$
$
41
1,018
49
(267)
841
643
639
786
1,071
238
(30)
—
3,347
(2,506) $
6
2,445
(167)
10,466
12,750
804
825
1,286
1,297
(733)
152
46
3,677
9,073
* The tax rate used in the calculation of the tax-equivalent income is 21% for 2018 and 35% for 2017 and 2016, respectively.
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Analysis of Interest Rates and Interest Differential
The table below presents the major asset and liability categories on an average daily basis for the periods presented, along with tax-equivalent
interest income and expense and key rates and yields:
For the Year Ended December 31,
2018
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
2017
Interest
Income/
Expense
Average
Rates
Earned/
Paid
2016
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
Average
Balance
$
37,550
$
264
0.70% $
34,122 $
174
0.51% $
43,214 $
168
0.39%
(dollars in thousands)
Assets:
Interest-bearing deposits with
banks
Investment securities - available
for sale:
Taxable
Tax –Exempt
513,114
16,966
11,652
346
2.27%
2.04%
409,813
27,062
8,147
575
1.99%
2.12%
329,161
38,173
5,784
742
1.76%
1.94%
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
Wholesale deposits
Time deposits
Total interest-bearing
deposits
Short-term borrowings
Long-term FHLB advances
Subordinated notes
Junior subordinated debt
Total interest-bearing
liabilities
Noninterest-bearing deposits
Other liabilities
Total noninterest-
bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and
shareholders’ equity
$4,352,122
Net interest spread
Effect of noninterest-bearing
sources
Net interest income/margin on
earning assets
Tax-equivalent adjustment(4)
530,080
11,998
2.26%
436,875
8,722
2.00%
367,334
6,526
1.78%
39
169
169,024
181,494
8,232
8,237
3,356,295
3,940,394
9,853
(18,447)
420,322
$4,352,122
5,621
0.47%
4,185
2.05%
5.04% 2,664,944
34
54
121,391
2,060
0.60%
3,740
1.29%
4.56% 2,429,416
4
2
110,925
—
0.05%
4.57%
4.61% 3,145,747
13,293
130,375
4.14% 2,845,764
16,317
117,625
4.13%
(17,181)
274,287
$3,416,146
(17,159)
260,728
$3,105,650
$
$1,715,239
251,384
539,934
8,860
5,021
6,671
0.52% $1,383,560 $
188,179
2.00%
330,797
1.24%
20,552
3,392
1,777
4,575
1,288
31,584
2,506,557
178,582
93,503
98,462
21,491
2,898,595
856,506
55,436
911,942
3,810,537
541,585
3,289
2,065
3,394
8,748
1,390
2,620
1,628
46
14,432
0.24% $1,292,228 $
163,724
1.10%
266,772
1.03%
0.46% 1,722,724
37,041
1.09%
225,815
1.63%
29,503
4.91%
—
4.61%
0.65% 2,015,083
687,134
33,904
2,485
1,240
2,108
5,833
93
3,353
1,476
—
10,755
721,038
2,736,121
369,529
$3,105,650
3.49%
0.20%
0.82% 1,902,536
128,008
1.90%
161,004
1.90%
33,153
4.65%
997
5.99%
1.09% 2,225,698
751,069
40,109
791,178
3,016,876
399,270
$3,416,146
3.52%
0.28%
$ 149,910
439
$
3.80%
0.01%
$ 115,943
816
$
3.69%
0.03%
$ 106,870
634
$
0.19%
0.76%
0.79%
0.34%
0.25%
1.48%
5.00%
—
0.53%
3.60%
0.16%
3.76%
0.02%
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Table of Contents
(1) Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest
income.
(2) Includes portfolio loans and leases and loans held for sale.
(3) Interest on loans and leases includes deferred fees of $1.5 million, $947 thousand and $522 thousand for the years ended December 31, 2018, 2017 and 2016,
respectively.
(4) Tax rate used for tax-equivalent calculations is 21% for 2018 and 35% for 2017 and 2016.
Tax-Equivalent Net Interest Income and Margin – 2018 Compared to 2017
Tax-equivalent net interest income of $149.9 million for the year ended December 31, 2018 increased $34.0 million as compared to $115.9 million for
the year ended December 31, 2017. Tax-equivalent net interest margin of 3.80% for the year ended December 31, 2018 increased eleven basis points
as compared to 3.69% for the year ended December 31, 2017.
Tax-equivalent interest and fees on loans and leases of $169.0 million for the year ended December 31, 2018 increased $47.6 million as compared to
$121.4 million for the year ended December 31, 2017. Average loans and leases for the year ended December 31, 2018 increased $691.3 million from
the same period in 2017 and experienced a 48 basis point increase in tax-equivalent yield. The increase in average loans and leases was primarily
related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $566.2 million, as well as organic loan
growth between the periods.
Tax-equivalent interest income on available for sale investment securities of $12.0 million for the year ended December 31, 2018 increased $3.3
million as compared to $8.7 million for the year ended December 31, 2017. Average available for sale investment securities for the year ended
December 31, 2018 increased $93.2 million from the same period in 2017 and experienced a 26 basis point increase in tax-equivalent yield.
Partially offsetting the effect on net interest income associated with the increase in average balances and yields in loans and leases and available for
sale investment securities were increases in interest expense on deposits and borrowings. Interest expense on interest-bearing deposits of $20.6
million for the year ended December 31, 2018 increased $11.9 million as compared to $8.7 million for the year ended December 31, 2017. Average
interest-bearing deposits for the year ended December 31, 2018 increased $604.0 million from the same period in 2017 and experienced a 36 basis
point increase in rates paid. The increase in average interest-bearing deposits was primarily related to the interest-bearing deposits assumed in the
RBPI Merger, which initially totaled $494.8 million.
Interest expense on borrowings of $11.0 million for the year ended December 31, 2018 increased $5.3 million as compared to $5.7 million for the year
ended December 31, 2017. The increase related to increases in interest expense on subordinated notes, short-term borrowings, and junior
subordinated debt of $2.9 million, $2.0 million, and $1.2 million, respectively, partially offset by a decrease in interest expense on long-term FHLB
advances of $843 thousand. Average subordinated notes for the year ended December 31, 2018 increased $65.3 million from the same period in 2017
and experienced a 26 basis point decrease in rates paid. The volume increase in subordinated notes was the result of the December 13, 2017
issuance of $70 million ten-year, 4.25% fixed-to-floating subordinated notes. Average short-term borrowings and junior subordinated notes for the
year ended December 31, 2018 increased $50.6 million and $20.5 million, respectively, from the same period in 2017 and experienced an 81 and 138
basis point increase, respectively, in rates paid. The volume increase in junior subordinated debt was related to the $21.4 million of floating rate
junior subordinated debentures assumed in the RBPI Merger.
Tax-Equivalent Net Interest Income and Margin – 2017 Compared to 2016
Tax-equivalent net interest income of $115.9 million for the year ended December 31, 2017 increased $9.0 million as compared to $106.9 million for the
year ended December 31, 2016. Tax-equivalent net interest margin of 3.69% for the year ended December 31, 2017 decreased seven basis points as
compared to 3.76% for the year ended December 31, 2016.
Tax-equivalent interest and fees on loans and leases of $121.4 million for the year ended December 31, 2017 increased $10.5 million as compared to
$110.9 million for the year ended December 31, 2016. Average loans and leases for the year ended December 31, 2017 increased $235.5 million from
the same period in 2016 with yields remaining relatively flat.
Tax-equivalent interest income on available for sale investment securities of $8.7 million for the year ended December 31, 2017 increased $2.2 million
as compared to $6.5 million for the year ended December 31, 2016. Average available for sale investment securities for the year ended December 31,
2017 increased $69.5 million from the same period in 2017 and experienced a 22 basis point increase in tax-equivalent yield.
Partially offsetting the effect on net interest income associated with the increase in average balances and yields in loans and leases and available for
sale investment securities were increases in interest expense on deposits and borrowings.
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Table of Contents
Interest expense on interest-bearing deposits of $8.7 million for the year ended December 31, 2017 increased $2.9 million as compared to $5.8 million
for the year ended December 31, 2016. Average interest-bearing deposits for the year ended December 31, 2017 increased $179.8 million from the
same period in 2016 and experienced a 12 basis point increase in rates paid.
Interest expense on borrowings of $5.7 million for the year ended December 31, 2017 increased $762 thousand as compared to $4.9 million for the
year ended December 31, 2016. The increase primarily related to increases in interest expense on short-term borrowings and subordinated notes of
$1.3 million and $152 thousand, respectively, partially offset by a decrease in interest expense on long-term FHLB advances of $733 thousand.
Average borrowings for the year ended December 31, 2017 increased $30.8 million from the same period in 2016 and experienced an 8 basis point
increase in rates paid.
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
4.74 %
4.54 %
4.57 %
4.58 %
4.15 %
1.30 %
1.16 %
1.02 %
0.87 %
0.74 %
3.44 %
3.38 %
3.55 %
3.71 %
3.41 %
0.35 %
0.31 %
0.26 %
0.23 %
0.21 %
3.79 %
3.69 %
3.81 %
3.94 %
3.62 %
Quarter
4th
3rd
2nd
1st
4th
Year
2018
2018
2018
2018
2017
Interest Rate Sensitivity
Management actively manages the Corporation’s interest rate sensitivity position. The objectives of interest rate risk management are to control
exposure of net interest income changes associated with interest rate movements and to achieve sustainable growth in net interest income. The
Corporation’s Asset Liability Committee (“ALCO”), using policies approved by the Corporation’s Board of Directors, is responsible for the
management of the Corporation’s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing
and re-pricing characteristics of its assets and liabilities. This is accomplished through the management of the investment portfolio, the pricings of
loans and deposit offerings and through wholesale funding. Wholesale funding is available from multiple sources including borrowings from the
FHLB, the Federal Reserve Bank of Philadelphia’s discount window, federal funds from correspondent banks, certificates of deposit from
institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program, Insured Cash Sweep
(“ICS”) and Pennsylvania Local Government Investment Trust (“PLGIT”).
Management utilizes several tools to measure the effect of interest rate risk on net interest income. These methods include gap analysis, market
value of portfolio equity analysis, and net interest income simulations under various scenarios. The results of these analyses are compared to limits
established by the Corporation’s ALCO policies and make adjustments as appropriate if the results are outside the established limits.
The below table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or
“shock”, in the yield curve and subjective adjustments in deposit pricing, might have on management’s projected net interest income over the next
12 months.
This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve months. By definition,
the simulation assumes static interest rates and does not incorporate forecasted changes in the yield curve. The changes to net interest income
shown below are in compliance with the Corporation’s policy guidelines.
38
Table of Contents
Summary of Interest Rate Simulation
+300 basis points
+200 basis points
+100 basis points
-100 basis points
Change in Net Interest Income Over the Twelve
Months Beginning After December 31, 2018
Change in Net Interest Income Over the Twelve
Months Beginning After December 31, 2017
Amount
Percentage
Amount
Percentage
$
$
$
$
5,644
3,734
1,860
(6,546 )
3.74 % $
2.47 % $
1.23 % $
(4.34 )% $
15,953
10,644
5,316
(6,913 )
10.66 %
7.11 %
3.55 %
(4.62 )%
The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of December 31, 2018 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 less asset sensitive in a rising-rate environment as of December 31, 2018 than it was as of December 31, 2017. The
decrease is related to a change on the mix and repricing characteristics of the retail deposits as well as an increase in fixed rate assets as a
percentage of total assets. The improvement of the change in the 100 basis point decrease in rate is related to the Bank's less asset sensitive
position as previously described.
The interest rate simulation is an estimate based on assumptions, which are derived from past behavior of customers, along with expectations of
future behavior relative to interest rate changes. In today’s economic environment and the emergent from an extended period of very low interest
rates, the reliability of management’s assumptions in the interest rate simulation model is more uncertain than in prior years. Actual customer
behavior, as it relates to deposit activity, may be significantly different than expected behavior, which could cause an unexpected outcome and may
result in lower net interest income than that derived from the analysis referenced above.
Gap Analysis
The interest sensitivity, or gap analysis, identifies interest rate risk by showing repricing gaps in the Corporation’s balance sheet. All assets and
liabilities are reflected based on behavioral sensitivity, which is usually the earliest of: repricing, maturity, contractual amortization, prepayments or
likely call dates. Non-maturity deposits, such as NOW, savings and money market accounts are spread over various time periods based on the
expected sensitivity of these rates considering liquidity. Non-rate-sensitive assets and liabilities are spread over time periods to reflect
management’s view of the maturity of these funds.
Non-maturity deposits (demand deposits in particular) are recognized by the 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 to capture that sensitivity.
Commercial demand deposits are often in the form of compensating balances, and fluctuate inversely to the level of interest rates; the maturity of
these deposits is reported as having a shorter life than typical retail demand deposits. Additionally, the Bank’s regulatory agencies have suggested
distribution limits for non-maturity deposits. However, management has taken a more conservative approach than these limits would suggest by
forecasting these deposit types with a shorter maturity. These assumptions are also reflected in the above interest rate simulation. The following
table presents the Corporation’s gap analysis as of December 31, 2018:
39
Table of Contents
(dollars in millions)
Assets:
Interest-bearing deposits with banks
Investment securities(1)
Loans and leases(2)
Allowance
Cash and due from banks
Other assets
Total assets
Liabilities and shareholders’ equity:
Demand, noninterest-bearing
Savings, NOW and market rate
Time deposits
Wholesale non-maturity deposits
Wholesale time deposits
Short-term borrowings
Long-term FHLB advances
Subordinated notes
Junior subordinated debentures
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’
equity
$
$
$
$
0 to 90
Days
91 to 365
Days
1 - 5
Years
Over
5 Years
Non-Rate
Sensitive
Total
34.4
222.1
1,346.5
—
—
—
1,603.0
25.3
86.2
87.9
55.0
185.6
252.4
—
—
21.6
—
20.2
734.2
1,603.0
688.7
$
$
$
$
$
$
$
—
54.4
385.3
—
—
—
439.7
76.0
246.7
326.3
—
139.7
—
28.3
—
—
—
60.5
877.5
439.7
741.0
$
$
$
$
$
$
—
346.5
1,339.9
—
—
—
1,686.4
263.8
728.5
126.4
—
—
—
27.1
98.5
—
—
322.7
$
$
$
—
130.6
357.2
—
—
—
487.8
536.5
713.1
2.1
—
—
—
—
—
—
—
161.3
$
$
$
$
1,567.0
1,686.4
980.5
$
$
1,413.0
487.8
715.2
— $
—
—
(19.4 )
14.1
440.9
435.6 $
— $
—
—
—
—
—
—
—
—
60.8
—
60.8 $
— $
—
34.4
753.6
3,428.9
(19.4 )
14.1
440.9
4,652.5
901.6
1,774.5
542.7
55.0
325.3
252.4
55.4
98.5
21.6
60.8
564.7
4,652.5
4,216.9
3,125.4
(301.3 )
$
705.9
$
(227.4 )
$
— $
1,091.5
613.0
$
1,318.9
$
1,091.5
$
— $
1,091.5
143 %
155 %
135 %
$
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
Cumulative earning assets as a % of
cumulative interest-bearing liabilities
(1)
(2) Loans include portfolio loans and leases and loans held for sale.
233 %
914.3
914.3
$
$
Investment securities include available for sale, held to maturity and trading.
The table above indicates that the Corporation is asset-sensitive in the immediate 90-day time frame and may experience an increase in net interest
income during that time period if rates rise. Conversely, if rates decline, net interest income may decline. It should be noted that the gap analysis is
only one tool used to measure interest rate sensitivity and should be used in conjunction with other measures such as the interest rate simulation
discussed above. The gap analysis measures the timing of changes in rate, but not the true weighting of any specific component of the
Corporation’s balance sheet. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at December 31, 2017.
40
Table of Contents
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 management’s review and evaluation of the loan and lease portfolio
in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors,
including management’s assumptions as to future delinquencies, recoveries and losses.
Increases to the Allowance are implemented through a corresponding Provision (expense) in the Corporation’s statement of income. Loans and
leases deemed uncollectible are charged against the Allowance. Recoveries of previously charged-off amounts are credited to the Allowance.
While management considers the Allowance to be adequate, based on information currently available, future additions to the Allowance may be
necessary due to changes in economic conditions or management’s assumptions as to future delinquencies, recoveries and losses and
management’s intent regarding the disposition of loans. In addition, the Pennsylvania Department of Banking and Securities and the Federal
Reserve Bank of Philadelphia, as an integral part of their examination processes, periodically review the Corporation’s Allowance.
The Corporation’s Allowance is comprised of four components that are calculated based on various independent methodologies. All components
of the Allowance are based on management’s estimates. These estimates are summarized earlier in this document under the heading “Critical
Accounting Policies, Judgments and Estimates.”
The four components of the Allowance are as follows:
•
Specific Loan Evaluation Component - Loans and leases for which management has reason to believe it is probable that it will not be able
to collect all contractually due amounts of principal and interest are evaluated for impairment on an individual basis and a specific
allocation of the Allowance is assigned, if necessary.
• Historical Charge-Off Component - Homogeneous pools of loans are evaluated to determine average historic charge-off rates.
Management applies a rolling, twenty quarter charge-off history as a look-back period to determine these average charge-off rates.
Management evaluates the length of this look-back period to determine its appropriateness. In addition, management develops an estimate
of a loss emergence period for each segment of the loan portfolio. The loss emergence period estimates the time between the occurrence of
a loss event for a borrower and an actual charge-off of a loan.
• Qualitative Factors Component - Various qualitative factors are considered as they relate to the different homogeneous loan pools to
adjust the historic charge-off rates so that they reflect current economic conditions that may not be accurately reflected in the historic
charge-off rates. These factors include delinquency trends, economic conditions, loan terms, credit grades, concentrations of credit,
regulatory environment and other relevant factors. The resulting adjustments are combined with the historic charge-off rates and result in
an allocation rate for each homogeneous loan pool.
• Unallocated Component - This amount represents the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating the specific, historical, and qualitative losses in the portfolio discussed above. There are many factors
considered, such as the inherent delay in obtaining information regarding a customer’s financial information or changes in their business
condition, the judgmental nature of loan and lease evaluations, the delay in interpreting economic trends, and the judgmental nature of
collateral assessments.
As part of the process of calculating the Allowance for the different segments of the loan and lease portfolio, management considers certain credit
quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans
are performed by both in-house employees as well as an external loan review service. The results of these reviews are reflected in the risk grade
assigned to each loan. These internally assigned grades are as follows:
• Pass - Loans considered satisfactory with no indications of deterioration.
•
•
Special mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit
position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or
of the collateral pledged, if any. Substandard loans have well-defined weaknesses that may jeopardize the
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liquidation of the collateral and repayment of the debt. They are characterized by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected.
• Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic
that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net
realizable values.
Consumer credit exposure, which includes residential mortgages, home equity lines and loans, leases and consumer loans, are assigned a credit risk
profile based primarily on payment activity (that is, their delinquency status).
Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated
Financial Statements in this Annual Report on Form 10-K for details regarding credit quality indicators associated with the Corporation’s loan and
lease portfolio.
ALLL Portfolio Segmentation – The Corporation’s loan and lease portfolio is divided into specific segments of loans and leases having similar
characteristics. These segments are as follows:
• Commercial mortgage(1)
• Home equity lines and loans
• Residential mortgage
• Construction
• Commercial and industrial
• Consumer
Leases
•
(1) During 2018 management further segmented commercial mortgages between owner-occupied and non-owner occupied to account for
different risk profiles and sensitivity to market factors that are attributed to each sub-segment. The commercial mortgage segment for 2018, as
disclosed within this Form 10-K, includes both owner-occupied and non-owner occupied for comparability to prior periods.
Refer to Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K and
the section of this MD&A under the heading Portfolio Loans and Leases for details of the Corporation’s loan and lease portfolio, broken down by
portfolio segment.
Impairment Measurement - In accordance with guidance provided by ASC 310-10, "Receivables", the Corporation employs one of three methods
to determine and measure impairment:
•
•
•
the Present Value of Future Cash Flow Method;
the Fair Value of Collateral Method;
the Observable Market Price of a Loan Method.
Loans and leases for which there is an indication that all contractual payments may not be collectible are evaluated for impairment on an individual
basis. Loans that are evaluated on an individual basis include non-performing loans, troubled debt restructurings and purchased credit-impaired
loans.
Nonaccrual Loans – In general, loans and leases that are delinquent on contractually due principal or interest payments for more than 89 days are
placed on nonaccrual status and any unpaid interest is reversed as a charge to interest income. When the loan resumes payment, all payments
(principal and interest) are applied to reduce principal. After a period of six months of satisfactory performance, the loan may be placed back on
accrual status. Any interest payments received during the nonaccrual period that had been applied to reduce principal are reversed and recorded as
a deferred fee which accretes to interest income over the remaining term of the loan or lease. In certain cases, management may have information
about a loan or lease that may indicate a future disruption or curtailment of contractual payments. In these cases, management will preemptively
place the loan or lease on nonaccrual status.
Troubled Debt Restructurings (“TDRs”) – Management follows guidance provided by ASC 310-40, “Troubled Debt Restructurings by Creditors.”
A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a
concession to the debtor that it would not otherwise consider in the normal course of business. A concession may include an extension of
repayment terms which would not normally be granted, a reduction of interest
42
Table of Contents
rate or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a
concession, management will make the necessary disclosures related to the TDR. In certain cases, a modification may be made in an effort to retain a
customer who is not experiencing financial difficulty. This type of modification is not considered to be a TDR. Once a loan or lease has been
modified and is considered a TDR, it is reported as an impaired loan or lease. If the loan or lease deemed a TDR has performed for at least six months
at the level prescribed by the modification, it is not considered to be non-performing; however, it will generally continue to be reported as impaired.
Loans and leases that have performed for at least six months are reported as TDRs in compliance with modified terms.
Refer to Section G, “Troubled Debt Restructurings,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial
Statements in this Annual Report on Form 10-K.
Charge-off Policy - The Corporation’s charge-off policy is that, on a periodic basis, not less often than quarterly, delinquent and non-performing
loans that exceed the following limits are considered for full or partial charge-off:
• Open-ended consumer loans exceeding 180 days past due.
• Closed-ended consumer loans exceeding 120 days past due.
• All commercial/business purpose loans exceeding 180 days past due.
• All leases exceeding 120 days past due.
Any other loan or lease, for which management has reason to believe collectability is unlikely, and for which sufficient collateral does not exist, is
also charged off.
Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated
Financial Statements in this Annual Report on Form 10-K for more information regarding the Corporation's charge-offs and factors which influenced
management’s judgment with respect thereto.
Loans Acquired in Mergers and Acquisitions
In accordance with GAAP, the loans acquired from RBPI, FKB, FBD and CBH were recorded at their fair value with no carryover of the previously
associated allowance for loan loss.
Certain loans were acquired which exhibited deteriorated credit quality since origination and for which management does not expect to collect all
contractual payments. Accounting for these purchased credit-impaired (“PCI”) loans is done in accordance with ASC 310-30, “Receivables – Loans
and Debt Securities Acquired with Deteriorated Credit Quality”. The loans were recorded at fair value, reflecting the present value of the amounts
expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be
collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain
on non-accrual status and have no accretable yield. On a regular basis, at least quarterly, an assessment is made on PCI loans to determine if there
has been any improvement or deterioration of the expected cash flows. If there has been improvement, an adjustment is made to increase the
recognition of interest on the PCI loan, as the estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in the expected
cash flows of a PCI loan, an allowance is recorded in connection with the loan. Management evaluates PCI loans individually for further impairment
as well as for improvements to expected cash flows.
Loans acquired in acquisitions which do not exhibit deteriorated credit quality at the time of acquisition are accounted for under ASC 310-20 and
receive a loan mark based on a credit and interest-rate analysis. The resulting discount or premium is accreted or amortized, respectively, to interest
income over their remaining maturity. These non-impaired acquired loans, along with the balance of the Corporation's loan and lease portfolio are
evaluated on either an individual basis or on a collective basis for impairment. For more information regarding the Corporation's impaired loans and
leases, refer to Section F, “Allowance for Loan and Lease Losses,” and Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the
accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. For more information regarding loan marks,
refer to Section I, “Loan Mark,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual
Report on Form 10-K.
Asset Quality and Analysis of Credit Risk
As of December 31, 2018, total non-performing loans and leases were $12.8 million, representing 0.37% of portfolio loans and leases, as compared to
$8.6 million, or 0.26% of portfolio loans and leases, as of December 31, 2017. The $4.2 million increase in non-performing loans and leases was
primarily due to increases of $2.1 million, $1.7 million, and $872 thousand in home equity
43
Table of Contents
lines, commercial mortgages, and leases, respectively, partially offset by a decrease of $965 thousand in non-performing residential mortgage loans.
The Provision for the years ended December 31, 2018, 2017 and 2016 was $7.2 million, $2.6 million and $4.3 million, respectively. The Provision
recorded during any given period reflects an allocation related to net new loan volume, changes in the economic environment, and the
replenishment of Allowance consumed by charge-offs of loans and leases for which the Corporation had not specifically reserved. Net loan charge-
offs for the year ended December 31, 2018 totaled $5.3 million as compared to $2.6 million for the same period in 2017. Total portfolio loans increased
by $141.3 million during the year ended December 31, 2018 as compared to $750.4 million for the same period in 2017. As of December 31, 2018, the
Allowance of $19.4 million represents 0.57% of portfolio loans and leases, as compared to the Allowance as of December 31, 2017 of $17.5 million,
which represented 0.53% of portfolio loans and leases as of that date.
As of December 31, 2018, the Corporation had other real estate owned (“OREO”) valued at $417 thousand, as compared to $304 thousand as of
December 31, 2017. The increase was primarily due to $372 thousand of additions to OREO during 2018 comprised of one residential property and
one manufactured home, which resulted from loan foreclosures. Partially offsetting the additions were sales of OREO properties acquired in the
December 2017 RBPI Merger, carried at $170 thousand.
As of December 31, 2018, the Corporation had $11.0 million of TDRs, of which $9.7 million were in compliance with their modified terms for six
months or greater, and hence, excluded from non-performing loans and leases. As of December 31, 2017, the Corporation had $9.1 million of TDRs,
of which $5.8 million were in compliance with their modified terms.
Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled principal and interest
payments in accordance with the original terms of the loans and leases. Included in impaired loans and leases are non-accrual loans and leases and
TDRs in compliance with modified terms. Purchased credit-impaired loans are not included in impaired loan and lease totals. As of December 31,
2018, the Corporation had $22.6 million of impaired loans and leases, as compared to $14.2 million as of December 31, 2017. For more information
regarding the Corporation's impaired loans and leases, refer to Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the accompanying
Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Management continues to be diligent in its credit underwriting process and very proactive with its loan review process, including engaging the
services of an independent outside loan review firm, which helps identify developing credit issues. These proactive steps include the procurement
of additional collateral (preferably outside the current loan structure) whenever possible. Management believes that timely identification of credit
issues and appropriate actions early in the process serve to mitigate overall losses.
44
Table of Contents
Non-Performing Assets, TDRs and Related Ratios as of or for the Year 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
TDRs included in non-performing assets
TDRs in compliance with modified terms
Total TDRs
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 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
2018
2017
2016
2015
2014
$
$
$
$
12,820
—
12,820
417
13,237
1,217
9,745
10,962
$
$
$
$
151.5%
0.37%
0.57%
0.28%
8,579
—
8,579
304
8,883
3,289
5,800
9,089
$
$
$
$
204.3%
0.26%
0.53%
0.20%
8,363
—
8,363
1,017
9,380
2,632
6,395
9,027
$
$
$
$
209.1%
0.33%
0.69%
0.27%
10,244
—
10,244
2,638
12,882
1,935
4,880
6,815
$
$
$
$
154.8%
0.45%
0.70%
0.43%
10,096
—
10,096
1,147
11,243
4,315
4,157
8,472
144.5%
0.61%
0.88%
0.50%
$ 3,427,154
$ 3,397,479
19,426
$
$
$
$
3,285,858
2,660,999
17,525
$
$
$
2,535,425
2,419,950
17,486
$
$
$
2,268,988
2,153,542
15,857
$
$
$
1,652,257
1,608,248
14,586
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 $
Interest income on impaired loans included in net income for the
period
$
1,240
$
708
$
1,098
$
1,100
$
774
$
485
$
551
$
513
$
533
341
As of December 31, 2018, management is not aware of any loan or lease, other than those disclosed in the table above, for which it has any serious
doubt as to the borrower’s ability to pay in accordance with the terms of the loan.
Summary of Changes in the Allowance for Loan and Lease Losses
(dollars in thousands)
Balance, January 1
Charge-offs:
Consumer
Commercial and industrial
Real estate
Leases
Total charge-offs
Recoveries:
Consumer
Commercial and industrial
Real estate
Construction
Leases
Total recoveries
Net charge-offs
Provision for loan and lease losses
Balance, December 31
Ratio of net charge-offs to average portfolio loans
outstanding
$
2018
2017
2016
2015
2014
$
17,525
$
17,486
$
15,857
$
14,586
$
15,515
(311)
(1,374)
(1,018)
(3,132)
(5,835)
10
24
74
2
433
543
(5,292)
7,193
19,426
$
(154)
(692)
(1,056)
(1,224)
(3,126)
8
25
182
4
328
547
(2,579)
2,618
17,525
$
(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
0.16%
0.10%
0.17%
0.15%
0.11%
45
Table of Contents
Allocation of Allowance for Loan and Lease Losses
The following table sets forth an allocation of the Allowance by portfolio segment. The specific allocations in any portfolio segment may be
changed in the future to reflect then-current conditions. Accordingly, management considers the entire Allowance to be available to absorb losses
in any portfolio segment.
2018
2017
%
Loans
to
Total
Loans
Allowance
Allowance
December 31,
2016
%
Loans
to
Total
Loans
%
Loans
to
Total
Loans
Allowance
2015
2014
%
Loans
to
Total
Loans
%
Loans
to
Total
Loans
Allowance
Allowance
$
7,567
48.3% $
7,550
46.4% $
6,227
43.8% $
5,199
42.5% $
3,948
41.8%
1,003
1,813
1,485
5,461
229
1,868
—
19,426
6.1%
1,086
6.6%
1,255
8.2%
1,307
9.2%
1,917
11.0%
14.4%
5.3%
1,926
937
14.0%
6.5%
20.3%
1.4%
4.2%
—%
100.0% $
5,038
246
742
—
17,525
21.9%
1.1%
3.5%
—%
100.0% $
1,917
2,233
5,142
153
559
—
17,486
16.3%
5.6%
1,740
1,324
17.9%
4.0%
1,736
1,367
19.0%
4.0%
22.9%
1.0%
2.2%
—%
100.0% $
5,609
142
518
18
15,857
23.1%
1.0%
2.3%
—%
4,533
238
468
379
100.0% $ 14,586
20.3%
1.1%
2.8%
—%
100.0%
(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
$
Noninterest Income
2018 Compared to 2017
Noninterest income of $76.0 million for the year ended December 31, 2018 increased $16.9 million, or 28.5%, as compared to $59.1 million for the year
ended December 31, 2017. The increase was primarily due to increases of $6.2 million, $3.6 million, $2.5 million, and $2.2 million in other operating
income, fees for wealth management services, capital markets revenue, and insurance commissions, respectively. The increase in other operating
income, which is further detailed in the table below, was primarily due to the $4.0 million increase in recoveries of purchase accounting fair value
marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. The increase in fees for wealth management
services was primarily related to the $460.8 million increase in wealth assets under management, administration, supervision and brokerage from
$12.97 billion at December 31, 2017 to $13.43 billion at December 31, 2018. The increase in capital markets revenue was primarily related to a full year
of operations for our capital markets group, which was formed during the second quarter of 2017, as well as organic growth. The increase in
insurance commissions was partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition.
Components of other operating income for the indicated years ended December 31 include:
(dollars in thousands)
Visa debit card income
Bank owned life insurance income
Commissions and fees
Safe deposit box rentals
Other investment income
Rent income
(Loss) gain on trading investments
Recovery of purchase accounting fair value loan mark
Miscellaneous other income
Other operating income
$
$
2018
2017
2016
$
1,700
1,177
1,270
386
337
150
(153)
4,338
2,341
11,546
$
1,443
959
621
365
48
193
613
337
742
5,321
$
$
1,381
908
673
382
223
163
112
452
574
4,868
46
Table of Contents
2017 Compared to 2016
Noninterest income of $59.1 million for the year ended December 31, 2017 increased $5.2 million, or 9.6%, as compared to $54.0 million for the year
ended December 31, 2016. The increase was primarily due to increases of $2.4 million, $2.1 million, $876 thousand, and $453 thousand in capital
markets revenue, fees for wealth management services, insurance commissions, and other operating income, respectively. The increase in capital
markets revenue was due to the establishment of our capital markets initiative, which was launched in the second quarter of 2017. The increase in
fees for wealth management services was primarily related to the $1.64 million increase in wealth assets under management, administration,
supervision and brokerage from $11.33 billion at December 31, 2016 to $12.97 billion at December 31, 2017. The increase in insurance commissions
was primarily due to the May 2017 acquisition of Hirshorn. The increase in other operating income, which is further detailed in the table above, was
primarily due to a $501 thousand increase in gain on trading investments. The Corporation’s trading investments are comprised solely of
investments held in deferred compensation plan trusts whose investment decisions are at the sole discretion of the plan participants. Partially
offsetting these increases was a $607 thousand decrease in net gain on sale of loans as mortgage refinancing activity slowed during 2017 with
increasing interest rates.
Noninterest Expense
2018 Compared to 2017
Noninterest expense of $140.3 million for the year ended December 31, 2018 increased $25.9 million, or 22.6%, as compared to $114.4 million for the
year ended December 31, 2017. The increase was primarily due to increases of $13.4 million and $2.7 million in salaries and wages and employee
benefits, respectively. A majority of these increases were related to the additional expenses associated with the staff assumed in the RBPI Merger,
and to a lesser extent, recruiting efforts of certain key leadership positions and increases in our incentive accruals. The remaining increase in
noninterest expense consisted of increases of $1.7 million, $1.7 million, $1.4 million, $1.3 million, and $1.0 million in occupancy and bank premises
expenses, due diligence, merger-related and merger integration expenses, information technology expenses, other operating expenses, and furniture,
fixtures and equipment expenses, respectively. These increases were also primarily due to the additional expenses associated with the facilities
assumed in the RBPI Merger. While much of the merger-related expenses associated with the RBPI Merger were recorded at the time of the merger,
certain expenses incurred in connection with the banking system conversion, contract terminations and lease terminations are recorded as they are
incurred.
Components of other operating expense for the indicated years ended December 31 include:
(dollars in thousands)
Contributions
Deferred compensation expense
Director fees
Dues and subscriptions
FDIC insurance
Impairment of OREO and other repossessed assets
Insurance
Loan processing
Miscellaneous other expense
MSR amortization and impairment
Other taxes
Outsourced services
Portfolio maintenance
Postage
Stationary and supplies
Telephone and data lines
Temporary help and recruiting
Travel and entertainment
Other operating expense
$
$
47
2018
2017
2016
$
1,659
(492 )
544
1,150
1,716
89
851
1,068
3,765
830
60
243
435
763
536
1,909
416
1,093
16,635
$
1,511
783
542
871
1,580
208
838
423
2,545
745
39
315
417
575
488
1,616
852
900
15,248
$
$
957
664
566
456
1,616
94
788
323
1,480
881
45
569
391
551
518
1,620
1,522
894
13,935
Table of Contents
2017 Compared to 2016
Noninterest expense of $114.4 million for the year ended December 31, 2017 increased $12.7 million, or 12.5%, as compared to $101.7 million for the
year ended December 31, 2016. The increase was primarily due to a $6.1 million increase in due diligence and merger-related and merger integration
expenses related to the RBPI Merger, and a $5.8 million increase in salary and wages due to staffing increases from our capital markets initiative, the
Hirshorn Boothby acquisition and the Princeton wealth management office, annual salary and wage increases, increases in incentive compensation
and to a smaller extent, the additional staff added in the RBPI Merger.
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, 2018, there were no pending or unsettled loan repurchase demands.
Income Tax Expense
Income tax expense of $14.2 million for the year ended December 31, 2018 decreased $20.1 million as compared to $34.2 million for the year ended
December 31, 2017. The effective tax rates for the years ended December 31, 2018 and 2017 were 18.2% and 59.8%, respectively. The decrease was
directly related to the Tax Reform enacted on December 22, 2017, which lowered the top federal corporate rate from 35% to 21%. Also contributing
to the decrease in income tax expense was the absence of the $15.2 million one-time income tax charge related to the re-measurement of the
Corporation’s net deferred tax asset, triggered by Tax Reform, during the year ended December 31, 2017, and a $2.6 million income tax benefit
recorded during the year ended December 31, 2018 for certain discrete items included on our 2017 tax return that was filed during the fourth quarter
of 2018.
Income tax expense of $34.2 million for the year ended December 31, 2017 increased $16.1 million as compared to $18.2 million for the year ended
December 31, 2016. The effective tax rates for the years ended December 31, 2017 and 2016 were 59.8% and 33.5%, respectively. The increase was
primarily due to the $15.2 million one-time charge to income tax expense, triggered by Tax Reform, during the year ended December 31, 2017.
For more information related to income taxes, refer to Note 16, “Income Taxes,” in the accompanying Notes to the Consolidated Financial
Statements in this Annual Report on Form 10-K.
Balance Sheet Analysis
Asset Changes
Total assets of $4.65 billion as of December 31, 2018 increased $202.8 million, or 4.6%, from $4.45 billion as of December 31, 2017. The increase is
primarily due to the increases in portfolio loans and leases and available for sale investment securities discussed in the following sections.
48
Table of Contents
Investment Securities
The following table details the maturity and weighted average yield(1) of the available for sale investment portfolio as of December 31, 2018:
(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(1):
Amortized cost
Weighted average yield
Mortgage-related securities(2):
Amortized cost
Weighted average yield
Other investment securities:
Amortized cost
Weighted average yield
Total amortized cost
Maturing
During
2018
Maturing
From
2019
Through
2022
Maturing
From
2023
Through
2027
Maturing
After
2027
Total
$
199,926
$
2.28 %
$
100
2.63 %
$
—
— %
$
—
— %
200,026
2.28 %
3,263
2.00 %
174,697
2.31 %
6,588
3.48 %
14,056
2.75 %
198,604
2.38 %
5,491
0.52 %
5,211
0.52 %
670
0.57 %
—
— %
11,372
0.52 %
12
0.25 %
450
1.99 %
17,414
0.37 %
60,589
0.39 %
256,211
0.37 %
334,226
0.37 %
650
3.46 %
—
— %
—
— %
1,100
2.86 %
$
209,142
$
198,072
$
67,847
$
270,267
$
745,328
Weighted average yield
(1)
(2) Mortgage-related securities are included in the above table based on their contractual maturity. However, mortgage-related securities, by design, have scheduled
Weighted average yields on tax-exempt obligations have not been computed on a tax-equivalent basis.
2.71 %
2.65 %
2.34 %
2.27 %
2.48 %
monthly principal payments which are not reflected in this table.
The following table details the amortized cost of the available for sale investment portfolio as of the dates indicated:
(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 investment securities
Total amortized cost
Amortized Cost as of December 31,
2018
200,026 $
198,604
11,372
294,076
40,150
1,100
745,328 $
2017
200,077
153,028
21,352
275,958
37,596
4,813
692,824
$
$
2016
200,094
83,111
33,625
185,997
49,488
16,575
568,890
$
$
$
$
2015
2014
101
101,342
41,892
157,422
29,756
17,263
347,776
$
$
102
66,881
28,955
79,498
34,618
17,499
227,553
49
Table of Contents
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 loans and leases
December 31,
2018
1,657,436
207,351
494,355
181,078
695,584
46,814
144,536
3,427,154
1,749
3,428,903
$
$
2017
1,523,377 $
218,275
458,886
212,454
719,312
38,153
115,401
3,285,858
3,794
3,289,652 $
2016
1,110,898
207,999
413,540
141,964
579,791
25,341
55,892
2,535,425
9,621
2,545,046
$
$
$
$
2015
2014
964,259
209,473
406,404
90,421
524,515
22,129
51,787
2,268,988
8,987
2,277,975
$
$
689,528
182,082
313,442
66,267
335,645
18,480
46,813
1,652,257
3,882
1,656,139
The following table summarizes the loan maturity distribution and interest rate sensitivity as of December 31, 2018. 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 fixed rates
Loans with adjustable or floating rates
Total
Maturing
During
2019
Maturing
From
2020
Through
2023
Maturing
After
2023
$
$
$
$
270,993
95,346
97,434
8,766
472,539
$
$
224,197 $
43,025
618,603
133,635
1,019,460 $
200,394
42,707
941,399
2,135
1,186,635
$
$
116,504
356,035
472,539
$
$
764,745 $
254,715
1,019,460 $
284,904
901,731
1,186,635
$
$
Total
695,584
181,078
1,657,436
144,536
2,678,634
1,166,153
1,512,481
2,678,634
The list below identifies certain key characteristics of the Corporation’s loan and lease portfolio. Refer to Note 5, “Loans and Leases,” in the
accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K and the section of this MD&A under the
heading “Portfolio Loans and Leases” for further details.
• Portfolio Loans and Leases - The Corporation’s $3.43 billion loan and lease portfolio is predominantly based in the Corporation’s
traditional market areas of Southeastern Pennsylvania, Southern and Central New Jersey, and Delaware. These markets have exhibited
relatively stable economic attributes, and have generally not seen the high levels of real estate price volatility experienced in other regions
nationwide.
• Concentrations - The Corporation has a significant portion of its portfolio loans (excluding leases) in real estate-related loans. As of
December 31, 2018 and December 31, 2017, respectively, loans secured by real estate were $2.54 billion and $2.41 billion, or 74.1% and
73.4%, of the total loan portfolio of $3.43 billion and $3.29 billion. A predominant percentage of the Corporation’s real estate exposure, both
commercial and residential, is within Pennsylvania, Delaware and Southern and Central New Jersey. Management is aware of this
concentration and mitigates this risk to the extent possible in many ways, including maintaining a diverse group of collateral property
types within the portfolio, and by exercising underwriting discipline which includes assessment of the borrower’s capacity to repay, equity
in the underlying real estate collateral and a review of a borrower’s global cash flows. For a substantial portion of the loans in the real
estate portfolio, the Corporation has recourse to the owners/sponsors, primarily through personal guaranties, in addition to liens on
collateral. This recourse provides credit strength, as it incorporates the borrowers’ global cash flows.
50
Table of Contents
In addition to loans secured by real estate, commercial and industrial loans comprise 20.3% of the total loan portfolio as of December 31,
2018.
• Construction - The construction portfolio of $181.1 million accounts for 5.3% of the total loan and lease portfolio at December 31, 2018, a
decrease of $31.4 million from December 31, 2017. 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, 2018 and 2017.
• Residential Mortgages - Residential mortgage loans were $494.4 million as of December 31, 2018, an increase of $35.5 million from
December 31, 2017. The residential mortgage segment accounts for 14.4% of the total loan and lease portfolio as of December 31, 2018. The
residential mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.52%, as compared
to 0.32% as of December 31, 2017. Nonperforming residential mortgage loans comprised 0.70% of the residential mortgage segment of the
portfolio as of December 31, 2018, as compared to 0.96% as of December 31, 2017. Management believes it is well protected with its
collateral position on this portfolio.
• Commercial Mortgages - Commercial mortgages were $1.66 billion as of December 31, 2018, an increase of $134.1 million from December 31,
2017. Management has made a concerted effort, over several operating cycles, to attract strong commercial real estate entrepreneurs in its
primary trade area. The commercial mortgage segment accounts for 48.4% of the total loan and lease portfolio as of December 31, 2018. The
commercial mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.06%, as compared
to 0.25% as of December 31, 2017. Nonperforming commercial mortgage loans comprised 0.15% of the commercial mortgage segment of the
portfolio as of December 31, 2018, as compared to 0.06% as of December 31, 2017. The borrowers comprising this segment of the portfolio
generally have strong, global cash flows, which are regularly assessed and have remained stable.
• Commercial and Industrial - Commercial and industrial loans were $695.6 million as of December 31, 2018, a decrease of $23.7 million from
December 31, 2017. The commercial and industrial segment accounts for 20.3% of the total loan and lease portfolio as of December 31, 2018.
The commercial and industrial segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.09%, as
compared to 0.13% as of December 31, 2017. Nonperforming commercial and industrial loans comprised 0.30% of the commercial and
industrial segment of the portfolio as of December 31, 2018, as compared to 0.24% as of December 31, 2017. The commercial and industrial
segment of the portfolio consists primarily of loans to privately held businesses and non-profit institutions headquartered within the
Corporation’s traditional market area. While some of these loans are collateralized by real estate, others are collateralized by non-real estate
business assets, including accounts receivable, inventory and equipment.
• Home Equity Loans and Lines of Credit - Home equity loans and lines of credit were $207.4 million as of December 31, 2018, a decrease of
$10.9 million from December 31, 2017. The home equity loans and lines of credit segment accounts for 6.1% of the total loan and lease
portfolio as of December 31, 2018. The home equity loans and lines of credit segment of the portfolio had a delinquency rate on performing
loans, as of December 31, 2018, of 0.05%, as compared to 0.16% as of December 31, 2017. Nonperforming home equity loans and lines of
credit comprised 1.74% of the home equity loans and lines of credit segment of the portfolio as of December 31, 2018, as compared to
0.68% as of December 31, 2017. The Bank originates the majority of its home equity loans and lines of credit through its retail channel.
• Consumer loans - Consumer loans were $46.8 million as of December 31, 2018, an increase of $8.7 million from December 31, 2017. The
consumer loan segment accounted for 1.4% of the total loan and lease portfolio as of December 31, 2018. The consumer loan segment of
the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.09%, as compared to 2.90% as of December 31,
2017. Nonperforming consumer loans comprised 0.23% of the consumer loan segment of the portfolio as of December 31, 2018, as
compared to no nonperforming consumer loans as of December 31, 2017. Consumer loans consist primarily of small-balance revolving or
installment loans originated through the Bank's retail channel.
• Leasing - Leases totaled $144.5 million as of December 31, 2018, an increase of $29.1 million from December 31, 2017. The lease segment of
the portfolio accounted for 4.2% of the total loan and lease portfolio as of December 31, 2018. The lease segment of the portfolio had a
delinquency rate on performing leases, as of December 31, 2018, of 0.77%, as compared to 0.26% as of December 31, 2017. Nonperforming
leases comprised 0.67% of the leasing segment of the portfolio as of December 31, 2018, as compared to 0.09% as of December 31, 2017.
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Table of Contents
Goodwill and Intangible Assets
Goodwill of $184.0 million as of December 31, 2018 increased $4.1 million, or 2.3%, from $179.9 million as of December 31, 2017. The increase was due
to $3.4 million of measurement period adjustments in connection with the RBPI Merger recorded during the year ended December 31, 2018, coupled
with $677 thousand of goodwill recorded from the acquisition of Domenick.
Intangible assets, other than mortgage servicing rights ("MSRs"), of $23.5 million as of December 31, 2018 decreased $2.5 million, or 9.7%, from
$26.0 million as of December 31, 2017. The decrease was due to $3.7 million of amortization, partially offset by the addition of $779 thousand of
intangible assets from the acquisition of Domenick.
For more information regarding goodwill and intangible assets, see Note 1, “Summary of Significant Accounting Policies,” Note 3, “Business
Combinations,” and Note 8, “Goodwill and Intangible Assets,” respectively, in the accompanying Notes to the Consolidated Financial Statements
in this Annual Report on Form 10-K.
FHLB Stock
The Corporation’s investment in stock issued by the FHLB was $14.5 million as of December 31, 2018, a decrease of $5.6 million, or 27.7%, from $20.1
million as of December 31, 2017. 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 of $5.0 million as of December 31, 2018 decreased $814 thousand, or 14%, from $5.9 million as of December 31, 2017. The decrease was
primarily due to amortization of $803 thousand for the year ended December 31, 2018. Mortgage loans sold with servicing retained was $1.9 million
for the year ended December 31, 2018, a decrease of $101.5 million, or 98.2%, from the $103.4 million of mortgage loans sold with servicing retained
for the year ended December 31, 2017.
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
Loan servicing and other fees
Amortization of MSRs
(Impairment) / Recovery of MSRs
For the Year Ended or as of December 31,
2018
2017
2016
162,854
$
190,007
$
280,059
1,850
86,518
88,368
$
$
54.3 %
2.1 %
97.9 %
578,788
5,047
2,477
2,259
803
(27 )
$
$
$
$
$
$
103,439
27,871
131,310
$
$
69.1 %
78.8 %
21.2 %
650,703
5,861
2,038
1,939
791
45
$
$
$
$
$
$
138,134
22,829
160,963
57.5 %
85.8 %
14.2 %
631,889
5,582
2,693
1,939
750
(131 )
$
$
$
$
$
$
$
$
$
52
Table of Contents
Liability Changes
Total liabilities of $4.09 billion as of December 31, 2018 increased $166.2 million, or 4.2%, from $3.92 billion as of December 31, 2017. The increase is
primarily due to the increase in total deposits offset by the decrease in total borrowings discussed in the following sections.
Deposits
Deposits of $3.60 billion as of December 31, 2018 increased $225.3 million, or 6.7%, from $3.37 billion as of December 31, 2017. Increases of $183.4
million, $153.3 million, and $10.5 million in interest-bearing demand accounts, wholesale time deposits, and retail time deposits, respectively, were
partially offset by decreases of $91.5 million, $23.2 million, and $7.2 million in savings accounts, noninterest-bearing demand accounts, and
wholesale non-maturity deposits, respectively.
The following table details deposits as of the dates indicated:
As of December 31,
(dollars in thousands)
2018
2017
2016
2015
2014
Interest-bearing demand
Money market
Savings
Retail time deposits
Wholesale non-maturity deposits
Wholesale time deposits
Total interest-bearing deposits
Noninterest-bearing deposits
Total deposits
$
$
$
664,749
862,644
247,081
542,702
55,031
325,261
2,697,468
901,619
3,599,087
$
$
$
481,336
862,639
338,572
532,202
62,276
171,929
2,448,954
924,844
3,373,798
$
$
$
379,424
761,657
232,193
322,912
74,272
73,037
1,843,495
736,180
2,579,675
$
$
$
338,861
749,726
187,299
229,253
67,717
53,185
1,626,041
626,684
2,252,725
$
$
$
277,228
566,354
138,992
118,400
66,693
73,458
1,241,125
446,903
1,688,028
The following table summarizes the maturities of certificates of deposit of $100,000 or greater as of December 31, 2018:
(dollars in thousands)
Three months or less
Three to six months
Six to twelve months
Greater than twelve months
Total
Retail
Wholesale
$
$
42,121 $
40,431
125,904
57,828
266,284 $
182,382
102,225
37,515
—
322,122
For more information regarding deposits, including average amount of deposits and average rate paid, refer to the sections of this MD&A under the
headings “Balance Sheet Analysis” and “Analysis of Interest Rates and Interest Differential.”
Borrowings
Borrowings of $427.8 million as of December 31, 2018, which include short-term borrowings, long-term FHLB advances, subordinated notes and
junior subordinated debentures, decreased $69.0 million, or 13.9%, from $496.8 million as of December 31, 2017. The decrease was comprised of a
$83.8 million decrease in long-term FHLB advances, partially offset by a $14.5 million increase in short-term borrowings (original maturity of one year
or less), which consisted of funds obtained from overnight repurchase agreements with commercial customers and short-term FHLB advances.
The following table details borrowings as of the dates indicated:
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As of December 31,
(dollars in thousands)
Short-term borrowings
Long-term FHLB advances
Subordinated notes
Jr. subordinated debentures
Total borrowings
2018
2017
2016
2015
2014
$
$
252,367
55,374
98,526
21,580
427,847
$
$
237,865
139,140
98,416
21,416
496,837
$
$
204,151
189,742
29,532
—
423,425
$
$
94,167
254,863
29,479
—
378,509
$
$
23,824
260,146
—
—
283,970
See the Liquidity Section of this MD&A under the heading “Liquidity” for further details on the Corporation’s FHLB available borrowing capacity.
Discussion of Segments
The Corporation has two operating segments: Wealth Management and Banking. These segments are discussed below. Detailed segment
information appears in Note 30, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report
on Form 10-K.
Wealth Management Segment Activity
The Wealth Management segment, which includes the insurance reporting unit, reported a pre-tax segment profit (“PTSP”) for the year ended
December 31, 2018 of $16.5 million, an increase of $1.4 million, or 9.7%, as compared to $15.1 million for the year ended December 31, 2017. Fees for
wealth management services of $42.3 million for the year ended December 31, 2018 increased $3.6 million, or 9.3%, as compared to $38.7 million for
the year ended December 31, 2017. The increase in fees was comprised of a $2.1 million increase from accounts whose fees are charged on a flat or
fixed basis, primarily due to a $581.3 million increase in fixed rate flat-fee account balances, and a $1.4 million increase in fees derived from market-
value based fee accounts, primarily due to strong market performance experienced during 2018. Revenue from the insurance division of $6.8 million
for the year ended December 31, 2018, which is reported as part of the Wealth Management segment, increased by $2.2 million, or 48.4%, partially
due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in addition to organic growth.
The PTSP of the Wealth Management segment for the year ended December 31, 2017 was $15.1 million, an increase of $702 thousand, or 4.9%, as
compared to $14.4 million for the year ended December 31, 2016. Fees for wealth management services of $38.7 million for the year ended
December 31, 2017 increased $2.0 million, or 5.6%, as compared to $36.7 million for the year ended December 31, 2016. The increase in fees, year over
year, is related to the $1.64 billion increase in assets under management, administration, supervision and brokerage. Approximately two-thirds of the
growth of the wealth asset portfolio was from accounts whose fees are charged on a flat or fixed basis. However, nearly two-thirds of the increase in
wealth management fees was derived from market-value based fee accounts, as a result of the strong market performance experienced in 2017.
Revenue from the insurance division, which is reported as part of the Wealth Management segment, increased by $867 thousand, or 23.3%,
primarily due to the May 2017 acquisition of Hirshorn, in addition to organic growth.
Wealth Assets Under Management, Administration, Supervision and Brokerage (“Wealth Assets”)
Wealth Asset accounts are categorized into two groups; the first account group consists predominantly of clients whose fees are determined based
on the market value of the assets held in their accounts (“Market Value” basis). The second account group consists predominantly of clients whose
fees are set at fixed amounts (“Fixed Fee” basis), and, as such, are not affected by market value changes.
The following tables detail the composition of Wealth Assets as it relates to the calculation of fees for wealth management services:
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(dollars in thousands)
Market value
Fixed fee
Total
Market value
Fixed fee
Total
Fee Basis
Fee Basis
December 31,
2018
Wealth Assets as of:
December 31,
2017
$
$
5,764,189 $
7,665,355
13,429,544 $
5,884,692
7,084,046
12,968,738
$
$
December 31,
2016
5,302,463
6,025,994
11,328,457
Percentage of Wealth Assets as of:
December 31,
2018
December 31,
2017
December 31,
2016
42.9%
57.1%
100.0%
45.4%
54.6%
100.0%
46.8%
53.2%
100.0%
The following tables detail the composition of fees for wealth management services for the periods indicated:
(dollars in thousands)
Fee Basis
Market value
Fixed fee
Total
December 31,
2018
For the Year Ended:
December 31,
2017
December 31,
2016
$
$
31,142 $
11,184
42,326 $
29,752
8,983
38,735
$
$
28,418
8,272
36,690
Fee Basis
Market value
Fixed fee
Total
Banking Segment Activity
Percentage of Fees for Wealth Management Services
For the Year Ended:
December 31,
2018
December 31,
2017
December 31,
2016
73.6%
26.4%
100.0%
76.8%
23.2%
100.0%
77.5%
22.5%
100.0%
Banking segment data as presented in Note 30, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this
Annual Report on Form 10-K indicates a PTSP of $61.4 million in 2018, $42.2 million in 2017 and $39.8 million in 2016. See the section of this MD&A
under the heading “Components of Net Income” for a discussion of the Banking Segment results.
Capital and Regulatory Capital Ratios
Consolidated shareholders’ equity of the Corporation was $564.7 million, or 12.1% of total assets, as of December 31, 2018, as compared to $528.1
million, or 11.9% of total assets, as of December 31, 2017.
In May 2018, the Corporation filed a shelf registration statement on Form S-3, SEC File No. 333-224849 (the “Shelf Registration Statement”). The
Shelf Registration Statement allows the Corporation to raise additional capital from time to time through offers and sales of registered securities
consisting of common stock, debt securities, warrants, purchase contracts, rights and units or units consisting of any combination of the foregoing
securities. The Corporation may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus
supplements, from time to time, in one or more offerings.
In addition, 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
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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 year ended December 31, 2018, the Corporation did not issue any shares through the Plan, nor were any RFWs approved. The Plan
administrator conducted dividend reinvestments for Plan participants through open market purchases. No other sales of equity securities were
executed under the Shelf Registration Statement during the year ended December 31, 2018.
Accumulated other comprehensive loss (“AOCL”) of $7.5 million as of December 31, 2018 increased $3.1 million, or 70%, from $4.4 million as of
December 31, 2017. The primary cause of the increase in AOCL was the increase in net unrealized losses on available for sale investment securities
primarily due to increasing interest rates.
As detailed in Section E, “Regulatory Capital Ratios,” of Note 27, “Regulatory Capital Requirements,” in the accompanying Notes to the
Consolidated Financial Statements in this Annual Report on Form 10-K, the capital ratios, as of December 31, 2018 and 2017 indicate levels above
the regulatory minimum to be considered “well capitalized.”
Liquidity
The Corporation has significant sources of liquidity as of December 31, 2018. The liquidity position is managed on a daily basis as part of the daily
settlement function, and on a monthly basis as part of the asset liability management process. The Corporation’s primary liquidity is maintained by
managing its deposits, along with the utilization of borrowings from the FHLB, purchased federal funds, and utilization of other wholesale funding
sources. Secondary sources of liquidity include the sale of certain investment securities and certain loans in the secondary market.
Other wholesale funding sources include certificates of deposit from brokers, generally available in blocks of $1.0 million or more. Funds obtained
through these programs totaled $325.3 million as of December 31, 2018.
As of December 31, 2018, the maximum borrowing capacity with the FHLB was $1.53 billion, with an unused borrowing availability of $1.25 billion.
Borrowing availability at the Federal Reserve Discount Window was $140.4 million, and overnight Fed Funds lines, consisting of lines from seven
banks, totaled $79.0 million. On a monthly basis, the ALCO reviews the Corporation’s liquidity needs. This information is reported to the Risk
Management Committee of the Board of Directors on a quarterly basis.
As of December 31, 2018, the Corporation held $14.5 million of FHLB stock as required by the borrowing agreement between the FHLB and the
Corporation.
The Corporation has an agreement with IND to provide up to $70 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 $55.0 million in balances as of December 31, 2018 under this
program.
The Corporation’s available for sale investment portfolio of $737.4 million as of December 31, 2018 was 15.9% 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 other repurchase agreements.
Management continually evaluates its borrowing capacity and sources of liquidity. Management currently believes that it has sufficient capacity to
fund expected short- and long-term earning asset growth with wholesale sources, along with deposit growth from its internal branch and wealth
products.
Off Balance Sheet Risk
The Corporation becomes party to financial instruments in the normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters of credit and create off-balance sheet risk.
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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, 2018, listed by dates of funding or payment:
(dollars in millions)
Unfunded loan commitments
Standby letters of credit
$
Total
Within
1 Year
2 - 3
Years
4 - 5
Years
After
5 Years
$
867.2
21.2
888.4
433.7 $
17.1
450.8 $
$
138.6
4.1
142.7
$
45.0
—
45.0
249.9
—
249.9
$
Total
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, 2018
(dollars in thousands)
Deposits without a stated maturity
Wholesale and retail certificates of deposit
Short-term borrowings
Long-term FHLB Advances
Subordinated Notes
Junior subordinated debentures
Operating leases
Purchase obligations
Total
Total
2,731,124
867,963
252,367
55,374
100,000
25,774
64,488
9,066
4,106,156
$
$
$
$
Within
1 Year
2 - 3
Years
4 - 5
Years
After
5 Years
2,731,124 $
739,766
252,367
28,105
—
—
5,211
6,736
3,763,309 $
—
115,409
—
27,269
—
—
9,178
2,330
154,186
$
$
—
11,901
—
—
—
—
8,254
—
20,155
$
$
—
887
—
—
100,000
25,774
41,845
—
168,506
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.
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The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a
significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the
Corporation’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot
be predicted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item 7A is incorporated by reference to information appearing in the MD&A Section of this Annual Report
on Form 10-K, more specifically in the sections entitled “Interest Rate Sensitivity,” “Summary of Interest Rate Simulation,” and “Gap Analysis.”
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited Consolidated Financial Statements and related documents are set forth in this Annual Report on Form 10-K on the
following pages:
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 Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
59
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60
62
63
64
65
67
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Bryn Mawr Bank Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bryn Mawr Bank Corporation and subsidiaries (the Company) as of
December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the consolidated financial
statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2018, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2018 based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial
statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
We have served as the Company’s auditor since 2004.
Philadelphia, Pennsylvania
March 1, 2019
(signed) KPMG LLP
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Consolidated Balance Sheets
(dollars in thousands)
Assets
Cash and due from banks
Interest bearing deposits with banks
Cash and cash equivalents
Investment securities available for sale, at fair value (amortized cost of $745,328 and $692,824 as of
December 31, 2018 and December 31, 2017, respectively)
Investment securities held to maturity, at amortized cost (fair value of $8,438 and $7,851 as of
December 31, 2018 and December 31, 2017, 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:
Noninterest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Long-term FHLB advances
Subordinated notes
Junior subordinated debentures
Accrued interest payable
Other liabilities
Total liabilities
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares; issued 24,545,348 and 24,360,049
shares as of December 31, 2018 and December 31, 2017, respectively, and outstanding of 20,163,816
and 20,161,395 as of December 31, 2018 and December 31, 2017, respectively
Paid-in capital in excess of par value
Less: Common stock in treasury at cost - 4,381,532 and 4,198,654 shares as of December 31, 2018
and December 31, 2017, respectively
Accumulated other comprehensive loss, net of tax
Retained earnings
December 31,
2018
December 31,
2017
$
14,099 $
34,357
48,456
11,657
48,367
60,024
737,442
689,202
8,684
7,502
1,749
2,885,251
541,903
3,427,154
(19,329 )
(97 )
(19,426 )
3,407,728
65,648
12,585
5,047
57,844
14,530
184,012
23,455
16,526
61,277
4,652,485 $
901,619 $
2,697,468
3,599,087
252,367
55,374
98,526
21,580
6,652
54,195
4,087,781
24,545
374,010
(75,883 )
(7,513 )
250,230
7,932
4,610
3,794
2,487,296
798,562
3,285,858
(17,475 )
(50 )
(17,525 )
3,268,333
54,458
14,246
5,861
56,667
20,083
179,889
25,966
12,470
46,185
4,449,720
924,844
2,448,954
3,373,798
237,865
139,140
98,416
21,416
3,527
47,439
3,921,601
24,360
371,486
(68,179 )
(4,414 )
205,549
$
$
Total Bryn Mawr Bank Corporation shareholders' equity
Noncontrolling interest
Total shareholders' equity
Total liabilities and shareholders' equity
565,389
(685 )
564,704
4,652,485 $
528,802
(683 )
528,119
4,449,720
$
The accompanying notes are an integral part of the Consolidated Financial Statements.
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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
Interest on junior subordinated debentures
Total interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Noninterest income:
Fees for wealth management services
Insurance commissions
Capital markets revenue
Service charges on deposits
Loan servicing and other fees
Net gain on sale of loans
Net gain (loss) on sale of investment securities available for sale
Net gain (loss) on sale of other real estate owned ("OREO")
Dividends on FHLB and FRB stock
Other operating income
Total noninterest income
Noninterest expenses:
Salaries and wages
Employee benefits
Occupancy and bank premises
Furniture, fixtures, and equipment
Advertising
Amortization of intangible assets
Due diligence, merger-related and merger integration expenses
Professional fees
Pennsylvania bank shares tax
Information technology
Other operating expenses
Total noninterest expenses
Income before income taxes
Income tax expense
Net income
Net (loss) income attributable to noncontrolling interest
Year Ended December 31,
2018
2017
2016
$
168,638 $
264
$
120,762
174
11,854
293
6
181,055
20,552
3,392
1,777
4,575
1,288
31,584
149,471
7,193
142,278
42,326
6,808
4,848
2,989
2,259
3,283
7
295
1,621
11,546
75,982
66,671
12,918
11,599
8,407
1,719
3,656
7,761
4,203
1,792
4,942
16,635
140,303
77,957
14,165
63,792 $
—
8,136
388
99
129,559
8,748
1,390
2,620
1,628
46
14,432
115,127
2,618
112,509
38,735
4,589
2,396
2,608
2,106
2,441
101
(104 )
939
5,321
59,132
53,251
10,170
9,906
7,385
1,454
2,734
6,104
3,268
1,294
3,581
15,248
114,395
57,246
34,230
23,016
—
$
$
110,536
168
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
3,048
(77 )
(76 )
1,063
4,868
53,968
47,411
9,249
9,611
7,520
1,381
3,498
—
3,659
1,749
3,661
13,935
101,674
54,204
18,168
36,036
—
Net income attributable to Bryn Mawr Bank Corporation
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
$
$
$
$
63,792 $
3.15 $
3.13 $
0.94 $
20,234,792
155,375
20,390,167
23,016
$
36,036
$
$
$
1.34
1.32
0.86
17,150,125
248,798
17,398,923
2.14
2.12
0.82
16,859,623
168,499
17,028,122
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Consolidated Statements of Comprehensive Income
(dollars in thousands)
Year Ended December 31,
2018
2017
2016
Net income attributable to Bryn Mawr Bank Corporation
$
63,792
$
23,016
$
36,036
Other comprehensive loss:
Net change in unrealized losses on investment securities available for sale:
Net unrealized losses arising during the period, net of tax benefit of $(806), $(570)
and $(1,106), respectively
Reclassification adjustment for net (gain) loss on sale realized in net income, net
of tax (expense) benefit of $(1), $(35), and $27, respectively
Reclassification adjustment for net gain realized on transfer of investment
securities available for sale to trading, net of tax expense of $(88), $0 and $0,
respectively
Unrealized investment losses, net of tax benefit of $(895), $(605) and $(1,079),
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 $72, $(54) and $5,
respectively
Total other comprehensive loss
Total comprehensive income
(3,033 )
(1,057 )
(2,055 )
(6 )
(66 )
(329 )
—
50
—
(3,368 )
(1,123 )
(2,005 )
269
(3,099 )
60,693
$
(100 )
(1,223 )
21,793
$
8
(1,997 )
34,039
$
The accompanying notes are an integral part of the Consolidated Financial Statements.
64
Table of Contents
Consolidated Statements of Cash Flows
(dollars in thousands)
Operating activities:
Year Ended December 31,
2018
2017
2016
Net income attributable to Bryn Mawr Bank Corporation
Adjustments to reconcile net income to net cash provided by operating activities:
$
63,792 $
23,016
$
36,036
Provision for loan and lease losses
Depreciation of premises and equipment
Loss on disposal of premises and equipment
Net amortization of investment premiums and discounts
Net (gain) loss on sale of investment securities available for sale
Net gain on sale of loans
Stock-based compensation
Amortization and net impairment of mortgage servicing rights
Net accretion of fair value adjustments
Amortization of intangible assets
Impairment of other real estate owned ("OREO") and other repossessed assets
Net (gain) loss 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
Settlement of pension liability acquired in RBPI Merger
Change in income taxes payable/receivable
Change in accrued interest receivable
Change in accrued interest payable
Change in other assets
Change in other liabilities
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
Purchase of domain name
Purchase of customer relationships
Purchase of portfolio loans and leases
Net portfolio loan and lease originations
Purchases of premises and equipment
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
7,193
6,610
1,627
3,044
(7)
(3,283)
2,750
830
(9,883)
3,656
89
(295)
(1,177)
532
(86,323)
91,353
9,839
—
415
1,661
3,125
(19,222)
2,909
79,235
(338,421)
(1,328)
278,895
532
7
5,553
810
—
(4,056)
—
(366)
(14,974)
(127,589)
(19,426)
(380)
525
(220,218)
2,618
5,551
—
2,990
(101)
(2,441)
2,068
744
(2,376)
2,734
208
104
(838)
(788)
(125,482)
132,639
20,418
(15,233)
(7,917)
(3,178)
(2,023)
(3,471)
3,690
32,932
(445,294)
(5,189)
283,545
108
130,858
(2,778)
25,682
—
2,059
(151)
—
—
(180,869)
(8,304)
12,301
1,048
(186,984)
226,598
14,502
201,015
18,714
4,326
5,630
—
3,200
77
(3,048)
1,713
880
(3,776)
3,498
94
76
(908)
79
(161,597)
162,762
1,676
—
4,340
(664)
883
865
(1,914)
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
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
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based
compensation
Net proceeds from sale of (purchase of) treasury stock for deferred compensation plans
Repurchase of warrants from U.S. Treasury
Net purchase of treasury stock through publicly announced plans
Proceeds from exercise of stock options
Net cash provided by financing activities
(19,289)
(83,872)
(660)
—
(1,639)
2
(1,755)
(5,936)
1,464
129,415
(14,799)
(110,049)
(642)
68,829
(1,140)
(115)
—
—
1,498
163,311
(13,961)
(65,000)
(627)
—
(745)
(133)
—
(7,971)
2,181
350,908
65
Table of Contents
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, warrants 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.
66
(11,568)
60,024
48,456 $
9,259
50,765
60,024
$
(92,302)
143,067
50,765
3,449 $
28,453 $
21,632
13,639
$
$
(3,099) $
(823) $
372 $
— $
(1,223) $
(659) $
$
342
$
138,509
1,096 $
687 $
849,610
724,085
$
$
12,261
9,872
(1,997)
(1,074)
546
—
—
—
$
$
$
$
$
$
$
$
$
Table of Contents
Consolidated Statements of Changes In Shareholders’ Equity
(dollars in thousands, except share and per share data)
For the Years Ended December 31, 2016, 2017, and 2018
Shares of
Common
Stock
Issued
Common
Stock
20,931,416 $ 20,931
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interest
Total
Shareholders'
Equity
$228,814 $ (58,144) $
(412) $174,522 $
—
$
365,711
Balance December 31, 2015
Net income
—
—
—
—
—
36,036
Common stock issued through share-based
awards and options exercises
Balance December 31, 2016
183,872
184
21,110,968 $ 21,111
2,121
—
$232,806 $ (66,950) $
(2,409) $196,569 $
Tax provision-to-return adjustment related
to excess tax benefit on stock-based
compensation
Dividends paid or accrued, $0.82 per share
Other comprehensive loss, net of tax
benefit of $1,074
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:
—
—
—
—
197
—
—
—
(4,320)
—
—
(4)
—
1,713
(39)
—
—
—
—
43
—
—
—
—
—
(7,971)
—
(878)
Net income
Dividends paid or accrued, $0.86 per share
Other comprehensive loss, net of tax
benefit of $659
Reclassification due to the adoption of
ASU No. 2018-02
Stock-based compensation
Form S-4 stock issuance costs
Retirement of treasury stock
Net purchase of treasury stock from stock
awards for statutory tax withholdings
Net purchase of treasury stock for
deferred compensation trusts
Stock warrants assumed in acquisitions
Noncontrolling interest assumed in
acquisitions
Common stock issued:
Shares issued in acquisitions
—
—
—
—
—
—
—
—
—
—
—
—
(2,628)
—
—
—
(3)
—
2,068
(233)
(23)
—
—
—
—
—
—
26
—
—
—
—
—
—
—
—
—
(1,140)
—
1,854
(115)
—
—
1,458
—
—
—
3,098,754
3,099
133,556
Common stock issued through share-based
awards and options exercises
Balance December 31, 2017
152,955
153
24,360,049 $ 24,360
—
—
—
(13,989)
(1,997)
—
—
—
—
—
—
—
—
—
—
—
—
—
23,016
(14,818)
(1,223)
—
(782)
—
—
—
—
—
—
—
—
—
782
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
36,036
197
(13,989)
(1,997)
1,713
—
(7,971)
(878)
2,305
381,127
$
23,016
(14,818)
(1,223)
—
2,068
(233)
—
(1,140)
(115)
1,854
(683)
(683)
—
—
136,655
1,611
528,119
$371,486 $ (68,179) $
(4,414) $205,549 $
(683) $
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Table of Contents
Net income attributable to Bryn Mawr
Bank Corporation
Net income attributable to noncontrolling
interest
Goodwill measurement period adjustment
effect on noncontrolling interest
Dividends paid or accrued, $0.94 per share
Other comprehensive loss, net of tax
benefit of $823
Stock based compensation
Retirement of treasury stock
Net purchase of treasury stock from stock
awards for statutory tax withholdings
Net treasury stock activity for deferred
compensation trusts
Purchase of treasury stock through
publicly announced plans
Repurchase of warrants from U.S.
Treasury
Common stock issued:
For the Years Ended December 31, 2016, 2017, and 2018
Shares of
Common
Stock
Issued
Common
Stock
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interest
Total
Shareholders'
Equity
—
—
—
—
—
—
—
—
—
—
2
—
—
—
(2,253)
—
—
(2)
—
2,750
(20)
—
—
—
—
—
—
22
—
—
—
—
—
—
—
—
—
(1,639)
153
(151)
—
(5,936)
(1,853)
1,382
110
—
—
—
—
—
—
—
63,792
—
—
(19,209)
—
—
63,792
—
(2)
—
—
(19,209)
(3,099)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
98
—
—
—
—
—
—
—
—
—
(3,099)
2,750
—
(1,639)
2
(5,936)
(1,755)
—
—
—
(685) $
1,566
113
564,704
Common stock issued through share-based
awards and options exercises
Shares issued in acquisitions(1)
Balance December 31, 2018
184,990
2,562
184
3
24,545,348 $ 24,545
$374,010 $ (75,883) $
(7,513) $250,230 $
(1) Shares relating to the RBPI Merger (defined in Note 3, “Business Combinations,” below) recorded in April 2018.
The accompanying notes are an integral part of the Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
A. Nature of Business
The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In
1986, Bryn Mawr Bank Corporation (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 offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing,
mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning,
custody services, and tax planning and preparation from 43 banking locations, six wealth management offices and two insurance and risk
management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle
County in Delaware; and Mercer and Camden Counties in New Jersey. The common stock of the Corporation trades on the NASDAQ Stock Market
(“NASDAQ”) under the symbol BMTC.
The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993
and headquartered in Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, with three
contingent cash payments, not to exceed $250 thousand each, to be payable on each of May 1, 2019, May 1, 2020, and May 1, 2021, subject to the
attainment of certain targets during the related periods.
On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the Corporation (the
“Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), pursuant to the Agreement and
Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the “Agreement”) was completed. Consideration paid
totaled $138.7 million, comprised of 3,101,316 shares of the Corporation’s common stock, the assumption of 140,224 warrants to purchase BMTC
common stock valued at $1.9 million, $112 thousand for the cash-out of certain options and $7 thousand of cash in lieu of fractional shares. The
RBPI Merger initially added $570.4 million of loans, $121.6 million of investments, $593.2 million of deposits, and twelve new branches. The
acquisition of RBPI expands the Corporation further into Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as well as Mercer
and Camden Counties in New Jersey.
On May 24, 2017, the acquisition of Harry R. Hirshorn & Company, Inc. (“Hirshorn”), an insurance agency headquartered in the Chestnut Hill
section of Philadelphia, was completed. Immediately after the acquisition, Hirshorn was merged into the Bank’s existing insurance subsidiary, BMT
Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was $7.5 million, of which $5.8
million was paid at closing, one contingent cash payment of $575 thousand was paid during the second quarter of 2018, and two contingent cash
payments, not to exceed $575 thousand each, to be payable in 2019 and 2020, subject to certain conditions. The acquisition enhanced the Bank’s
ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing
specialty offices in targeted areas.
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”).
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,
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and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in
2019, actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial
condition. Amounts subject to significant estimates are items such as the allowance for loan and lease losses and lending related commitments,
goodwill and intangible assets, pension and post-retirement obligations, the fair value of financial instruments and other-than-temporary
impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and
establishment of allowances for loan losses and lending-related commitments as well as increased pension and post-retirement expense.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries; the Corporation’s primary
subsidiary is the Bank. In connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and
Royal Bancshares Capital Trust II. These two entities are not consolidated per requirements under Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All significant intercompany balances and
transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current-year presentation.
C. Cash and Cash Equivalents
Cash and cash equivalents include cash, interest-bearing and noninterest-bearing amounts due from banks, and federal funds sold. Cash balances
required to meet regulatory reserve requirements of the Federal Reserve Board amounted to $4.3 million and $5.8 million at December 31, 2018 and
December 31, 2017, 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 2018, 2017 or 2016.
Investments for which management has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at their
amortized cost on the balance sheet. No adjustment for market value fluctuations are recorded related to the held to maturity portfolio.
Investment securities held in trading accounts consist of deferred compensation trust accounts, which are invested in listed mutual funds whose
diversification is at the discretion of the deferred compensation plan participants. Investment securities held in trading accounts are reported at fair
value, with adjustments in fair value reported through income.
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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.
F. Portfolio Loans and Leases
The Corporation originates construction, commercial and industrial, commercial mortgage, residential mortgage, home equity and consumer loans to
customers primarily in southeastern Pennsylvania, as well as small-ticket equipment leases to customers nationwide. Although the Corporation has
a diversified loan and lease portfolio, its debtors’ ability to honor their contracts is substantially dependent upon the real estate and general
economic conditions of the region.
Loans and leases that management has the intention and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported
at their outstanding principal balance adjusted for charge-offs, the allowance for loan and lease losses and any deferred fees or costs on originated
loans and leases. Interest income is accrued on the unpaid principal balance.
Loan and lease origination fees and loan and lease origination costs are deferred and recognized as an adjustment to the related yield using the
interest method.
The accrual of interest on loans and leases is generally discontinued at the time the loan is 90 days delinquent unless the credit is well secured and
in the process of collection. Loans and leases are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is
considered doubtful. All interest accrued, but not collected for loans that are placed on nonaccrual status or charged-off is charged against interest
income. All interest accrued, but not collected, on leases that are placed on nonaccrual status is not charged against interest income until the lease
becomes 120 days delinquent, at which point it is charged off. The interest received on these nonaccrual loans and leases is applied to reduce the
carrying value of loans and leases. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are
brought current and remain current for at least six months, and future payments are reasonably assured. Once a loan returns to accrual status, any
interest payments collected during the nonaccrual period which had been applied to the principal balance are reversed and recognized as interest
income over the remaining term of the loan.
Certain loans which have reached maturity and have been approved for extension or renewal, but for which all required documents have not been
fully executed as of the reporting date, are classified as Administratively Delinquent and are not considered to be delinquent. These loans are
reported as current in all disclosures.
Loans acquired in mergers are recorded at their fair values. The difference between the recorded fair value and the principal value is accreted to
interest income over the contractual lives of the loans in accordance with ASC 310-20. Certain acquired loans which were deemed to be credit
impaired at acquisition are accounted for in accordance with ASC 310-30, as discussed below, in subsection H of this footnote.
G. Allowance for Loan and Lease Losses
The allowance for loan and lease losses (the “Allowance”) is established through a provision for loan and lease losses (the “Provision”) charged as
an expense. The principal balances of loans and leases are charged against the Allowance when management believes that the principal is
uncollectible. The Allowance is maintained at a level that the Corporation believes is sufficient to absorb estimated potential credit losses.
Management’s determination of the adequacy of the Allowance is based on guidance provided in ASC 450 – Contingencies and ASC 310 -
Receivables, and involves the periodic evaluations of the loan and lease portfolio and other relevant factors. However, this evaluation is inherently
subjective as it requires significant estimates by management. Consideration is given to a variety of factors in establishing these estimates.
Quantitative factors in the form of historical net charge-off rates by portfolio segment are considered. In connection with these quantitative factors,
management establishes what it deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 2018,
management utilized a five-year LBP, which it believes adequately captures the trends in charge-offs. In addition, management develops an estimate
of a loss emergence period (“LEP”) for each segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a
borrower and an actual charge-off of a loan. As of December 31, 2018, management utilized a two-year LEP for its commercial loan segments, and a
one-year LEP for its consumer loan segments, based on analyses of actual charge-offs tracked back in time to the triggering event for the eventual
loss. In addition, various qualitative factors are considered, including the specific terms and conditions of loans, changes in underwriting
standards, delinquency statistics, industry concentrations and overall exposure of a single customer. In addition, consideration is given to the
adequacy of collateral, the dependence on collateral,
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and the results of internal loan reviews, including a borrower’s financial strengths, their expected cash flows, and their access to additional funds.
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 staff as well as external third-party loan review specialists. The result of these reviews is reflected in the risk grade
assigned to each loan. For the consumer segments of the loan portfolio, the indicator of credit quality is reflected by the performance/non-
performance status of a loan.
The evaluation process also considers the impact of competition, current and expected economic conditions, national and international events, the
regulatory and legislative environment, and inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant
change. To the extent actual outcomes differ from management’s estimates, an additional Provision may be required that might adversely affect the
Corporation’s results of operations in future periods. In addition, various regulatory agencies, as an integral part of their examination processes,
periodically review the adequacy of the Allowance. Such agencies may require the Corporation to record additions to the Allowance based on their
judgment of information available to them at the time of their examination.
H. Impaired Loans and Leases
A loan or lease is considered impaired when, based on current information, it is probable that management will be unable to collect the contractually
scheduled payments of principal or interest. When assessing impairment, management considers various factors, which include payment status,
realizable value of collateral and the probability of collecting scheduled principal and interest payments when due. Loans and leases that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment
record, and the amount of the shortfall in relation to the principal and interest owed.
For loans that indicate possible signs of impairment, which in most cases is based on the performance/non-performance status of the loan, an
impairment analysis is conducted based on guidance provided by ASC 310-10. Impairment is measured by (i) the fair value of the collateral, if the
loan is collateral-dependent, (ii) the present value of expected future cash flows discounted at the loan’s contractual effective interest rate, or (iii),
less frequently, the loan’s obtainable market price.
In addition to originating loans, the Corporation occasionally acquires loans through mergers or loan purchase transactions. Some of these
acquired loans may exhibit deteriorated credit quality that has occurred since origination and, as such, management may not expect to collect all
contractual payments. Accounting for these purchased credit-impaired (“PCI”) loans is done in accordance with ASC 310-30. The loans are
recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a
reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral-
dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. On a regular basis,
at least quarterly, PCI loans are assessed to determine if there has been any improvement or deterioration of the expected cash flows. If there has
been improvement, an adjustment is made to increase the recognition of interest on the PCI loan, as the estimate of expected loss on the loan is
reduced. Conversely, if there is deterioration in the expected cash flows of a PCI loan, a Provision is recorded in connection with the loan.
I. Troubled Debt Restructurings (“TDRs")
A TDR occurs when a creditor, for economic or legal reasons related to a borrower’s financial difficulties, modifies the original terms of a loan or
lease, or grants a concession to the borrower that it would not otherwise have granted. A concession may include an extension of repayment terms,
a reduction in the interest rate, or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the
creditor has granted a concession, the Corporation will make the necessary disclosures related to the TDR. In certain cases, a modification or
concession may be made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not considered a
TDR.
J. Other Real Estate Owned (“OREO”)
OREO consists of assets that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking
possession of assets that were used as loan collateral. The Corporation reports OREO on the balance sheet as part of other assets, at the lower of
cost or fair value less cost to sell, adjusted periodically based on current appraisals. Costs
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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, 2018, the carrying value of the Corporation’s FHLB stock was $14.5 million. In addition, the Corporation is required to hold FRB
stock based on the Corporation’s capital. As of December 31, 2018, the carrying value of the Corporation’s FRB stock was $12.0 million. Ownership
of FHLB and FRB stock is restricted and there is no market for these securities. For further information on the FHLB stock, see Note 11, “Short-Term
Borrowings and Long-Term FHLB Advances,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form
10-K.
L. Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. Depreciation and predetermined rent are recorded using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are amortized over the expected lease term or the estimated useful
lives, whichever is shorter.
M. Pension and Postretirement Benefit Plan
As of December 31, 2018, the Corporation had two non-qualified defined-benefit supplemental executive retirement plans and a postretirement
benefit plan as discussed in Note 15, “Pension and Postretirement Benefit Plans,” in the accompanying Notes to the Consolidated Financial
Statements in this Annual Report on Form 10-K. Net pension expense related to the defined-benefit consists of service cost, interest cost, return on
plan assets, amortization of prior service cost, amortization of transition obligations and amortization of net actuarial gains and losses. As it relates
to the costs associated with the post-retirement benefit plan, the costs are recognized as they are incurred.
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 noninterest 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. The Corporation enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-
rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Corporation originates variable-rate loans
with customers in addition to interest rate swap agreements, which serve to effectively swap the customers’ variable-rate loans into fixed-rate loans.
The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge its exposure on the
variable and fixed components of the customer agreements. The interest rate swaps with both the customers and third parties are not designated as
hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to
the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may
be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820.
In addition to interest rate swaps with customers, the Corporation may also enter into a risk participation agreement with another institution as a
means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income
commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk
associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the
Corporation may purchase a risk participation agreement from an institution participating in the facility in exchange for a fee commensurate with the
risk shared. This type of derivative is referred to as an “RPA purchased.”
If a derivative has qualified as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the
change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or
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recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair
value is recognized in earnings immediately. To determine fair value, management uses valuations obtained from a third party which utilizes a
pricing model that incorporates assumptions about market conditions and risks that are current as of the reporting date. Management reviews,
annually, the inputs utilized by its independent third-party valuation organization.
The Corporation may use interest-rate swap agreements to modify the interest rate characteristics from variable to fixed, or fixed to variable, in order
to reduce the impact of interest rate changes on future net interest income. If present, the Corporation accounts for its interest-rate swap contracts
in cash flow hedging relationships by establishing and documenting the effectiveness of the instrument in offsetting the change in cash flows of
assets or liabilities that are being hedged. To determine effectiveness, the management performs an analysis to identify if changes in fair value or
cash flow of the derivative correlate to the equivalent changes in the forecasted interest receipts or payments related to a specified hedged item.
Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The change in fair value of the ineffective part of the
instrument would need to be charged to the Statement of Income, potentially causing material fluctuations in reported earnings in the period of the
change relative to comparable periods. In a fair value hedge, the fair value of the interest rate swap agreements and changes in the fair value of the
hedged items are recorded in the Corporation’s consolidated balance sheets with the corresponding gain or loss being recognized in current
earnings. The difference between changes in the fair values of interest rate swap agreements and the hedged items represents hedge
ineffectiveness, and is recorded in net interest income in the statement of income. Management performs an assessment, both at the inception of
the hedge and quarterly thereafter, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged
items.
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 our stock price, risk-free interest rate and annual dividend yield. The
fair value of the restricted stock awards and performance-based awards whose performance is measured based on an internally produced metric is
based on their closing price on the grant date, while the fair value of the performance-based stock awards which use an external measure, such as
total stockholder return, is based on their grant-date market value adjusted for the likelihood of attaining certain pre-determined performance goals
and is calculated by utilizing a Monte Carlo Simulation model.
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 shares of common stock 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. Net deferred tax assets are included within the other assets line item on
the Consolidated Balance Sheets.
The Corporation recognizes the benefit of a tax position only after determining that the Corporation would more-likely-than-not sustain the position
following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Consolidated Financial
Statements is the largest benefit that has a greater than 50 percent likelihood of being
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realized upon settlement with the relevant tax authority. Management 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 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 may retain the servicing
rights related to these loans. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received in return for these
services. Gains on the sale of these loans are based on the specific identification method.
An intangible asset, referred to as mortgage servicing rights (“MSRs") is recognized when a loan’s servicing rights are retained upon sale of a loan.
These MSRs amortize to noninterest expense in proportion to, and over the period of, the estimated future net servicing life of the underlying loans.
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. Goodwill and Intangible Assets
The Corporation accounts for goodwill and intangible assets in accordance with ASC 350, “Intangibles – Goodwill and Other.” The amount of
goodwill initially recorded is based on the fair value of the acquired entity at the time of acquisition. Management performs goodwill and intangible
assets impairment testing annually, as of October 31, or when events occur or circumstances change that would more likely than not reduce the fair
value of the acquisition or investment. Goodwill impairment is tested on a reporting unit level. The Corporation currently has three reporting units:
Banking, Wealth Management and Insurance. As of December 31, 2018, 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,
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based on its internal reporting structure. While the Insurance reporting unit did not meet the threshold for reporting as a separate operating
segment for goodwill testing, the Insurance segment was tested for impairment. An operating segment is a component of an enterprise that engages
in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief
operating decision makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete
financial information is available.
Management’s impairment testing methodology is consistent with the methodology prescribed in ASC 350. Management completes a goodwill
impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. Management also
reviews other intangible assets with finite lives for impairment if events and circumstances indicate that the carrying value may not be recoverable.
V. Reclassifications
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
Note 2 - Recent Accounting Pronouncements
The following Financial Accounting Standards Board ("FASB") Accounting Standards Updates ("ASUs") are divided into pronouncements which
have been adopted by the Corporation during the year ended December 31, 2018, and those which are not yet effective as of December 31, 2018 and
have been evaluated or are currently being evaluated by management.
Adopted Pronouncements in 2018:
FASB ASU 2014-09 (Topic 606), “Revenue from Contracts with Customers”
The Corporation adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC
606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is
appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation’s revenues come from
interest income and other sources, including loans, leases, investment securities and derivatives, that are outside the scope of ASC 606. The
Corporation’s services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the
Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, Visa debit card
income, wealth management fees, investment brokerage fees, and the net gain on sale of OREO. Refer to Note 19, “Revenue from Contracts with
Customers,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further discussion on the
Corporation’s accounting policies for revenue sources within the scope of ASC 606. The adoption of this ASU did not have an impact to our
Consolidated Financial Statements and related disclosures.
FASB ASU 2017-01 (Topic 805), “Business Combinations”
The Corporation adopted ASU 2017-01, which 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. The adoption of this ASU did not have a material impact
on our Consolidated Financial Statements and related disclosures.
FASB ASU 2016-15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”
The Corporation adopted ASU 2016-15, which 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.
The adoption of this ASU did not have a material impact on our 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”
The Corporation adopted ASU 2016-01 which requires that equity investments be measured at fair value with changes in fair value recognized in net
income. The Corporation’s equity investments with a readily determinable fair value are currently
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included within trading securities and are measured at fair value with changes in fair value recognized in net income. In connection with the
adoption of this ASU, the Corporation elected the practicability exception to fair value measurement for investments in equity securities without a
readily determinable fair value (other than our Federal Home Loan Bank (“FHLB”), Federal Reserve Bank ("FRB"), and Atlantic Central Bankers
Bank stock, which are outside of the scope of this ASU). Under the practicability exception, the investments are measured at cost, less impairment,
plus or minus observable price changes (in orderly transactions) of an identical or similar investment of the same issuer. The adoption of this ASU
did not have a material impact on our Consolidated Financial Statements and related disclosures.
FASB ASU 2017-07 (Topic 715), “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”
On January 1, 2018, the Corporation adopted ASU 2017-07 and all subsequent amendments to the ASU, which requires that an employer report the
service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees
during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost
component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other
components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or
items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also
allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory
or a self-constructed asset).
Upon adoption, the components of net periodic benefit cost other than the service cost component were reclassified retrospectively from
“Employee benefits” to “Other operating expenses” in the Consolidated Statements of Income. Since both “Employee benefits” and “Other
operating expenses” line items are under “Noninterest expenses,” there was no impact to total “Noninterest expenses” or “Net income.” The
components of net periodic benefit cost are currently disclosed in Note 15, “Pension and Postretirement Benefit Plans,” in the accompanying Notes
to the Consolidated Financial Statements in this Annual Report on Form 10-K. Additionally, the Corporation does not currently capitalize any
components of its net periodic benefit costs. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements
and related disclosures.
Pronouncements Not Effective as of December 31, 2018:
FASB ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”
Issued in June 2018, ASU 2018-07: Compensation - Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment
Accounting” expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from
nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option
pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost
recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that
Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with
selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.
The amendments in this update became effective for us January 1, 2019. The adoption did not have an impact on our Consolidated Financial
Statements and related disclosures as the Corporation has not historically granted share based payment awards to nonemployees other than to the
Corporation’s Board of Directors, who are treated as employees for share-based payment accounting.
FASB ASU 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. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related
disclosures.
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FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”
Issued in June 2016, ASU 2016-13 (Topic 326 -Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”), eliminates the
Provision for Loan and Lease Losses ("PLLL") and Allowance for Loan and Lease Losses ("ALLL") line items and establishes the Provision for
Credit Losses ("PCL") and Allowance for Credit Losses ("ACL") line items.
Under the legacy “Incurred Loss” notion, management presents an ALLL intended to represent “probable and estimable” incurred but not yet
realized credit losses on assets in scope. When management deems collection of contractual cashflows for an instrument unlikely, a specific reserve
is calculated under ASC 310-10. Management further calculates a general reserve for performing assets under ASC 450-20, using historical loss
experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not allow for
projections beyond the likely ‘emergence period’ of losses, or for forward-looking economic conditions; for example, loss contingencies in 2022 are
not currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.
In contrast, the future accounting standard requires projection of credit loss over the contract lifetime of the asset, adjusted for prepayment
tendencies. Further, management’s specific expectations for the future economic environment must be incorporated in the projection, with loss
expectations to revert to the long-run historical mean after such time as management can make or obtain a reasonable and supportable forecast. This
valuation reserve will be established in the ACL and maintained through expense (provision) in the PCL. In the event that additional allocation is
required to fund the ACL at adoption, investors will see a cumulative-effect (one time) adjustment to retained earnings upon adoption of the new
standard. The new CECL standard will become effective for the Corporation for fiscal years beginning after December 15, 2019 and for interim
periods within those fiscal years.
The Corporation has engaged with a leading vendor to assist in computing and establishing the ACL, and management has completed the data
gathering and model selection efforts, with continued effort through 2019 to operationalize the practice for establishing the ACL and preparing its
presentation. Significant additional quantitative analysis is included in management’s contemplated measurement regime, including examination of
loss experience at representative peer institutions when the Corporation’s first-party loss history does not result in estimations that are meaningful
to users of the Corporation’s Consolidated Financial Statements. Preliminary evaluations were performed by discounting instrument-level cashflows
adjusted for timing (e.g. prepayment) and credit (default and loss) expectations. Management will continue to evaluate other estimation
methodologies and disaggregation approaches through the 2019 year.
The Corporation will comply with the new disclosure and presentation requirements enumerated in ASU 2016-13, including presentation of the
vintage disclosure organizing certain credit performance data by year of origination/renewal (“policy year”).
Financial statement users should be aware that the ACL is, by design, inherently sensitive to changes in economic outlook, loan and lease portfolio
composition, portfolio duration, and other factors. The following factors could lead to a material impact to retained earnings - in either direction - as
of the adoption date:
Increases / decreases to the time period management deems reasonably and supportably forecastable
Inclusion / exclusion of forecast factors
•
•
• Adverse changes to reasonable and supportable forecasts
• Detectable increases / decreases in the Corporation’s or comparable industry credit loss parameters
• Deterioration / improvement in the risk profile of the Corporation’s loan and lease portfolio
• Decreased / increased prepayment behavior or other factors impacting loan and lease portfolio duration
• Changes in credit risk through the ordinary course of operations, such as launch or expansion of higher risk-bearing products
•
Interest rate fluctuations impacting effective yield on certain instruments.
Management cautions that this list is not exhaustive. Further, management may adjust quantitatively established allocation for factors that defy
numerical modeling, leading to a material adjustment not due to factors specified above. Moreover, interpretations and clarifications of the guidance
through the FASB’s ongoing Transition Resource Group efforts may change management’s estimates of the impact. Finally, the impact of
accounting treatment changes for establishing the ACL for purchased assets under future acquisitions may effect a cumulative-effect adjustment to
retained earnings that proves material.
Ongoing financial statement behavior will be impacted by the standard, regardless of any cumulative-effect adjustment at adoption. Under our
currently contemplated cashflow projection model, assets will originate with a specific allocation for the contract life of that instrument, adjusted for
prepayment behavior and probabilistic credit performance expectations to arrive at an expected cashflow projection. All else being equal, as that
continues toward its contract maturity, estimates of lifetime credit
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loss at the instrument level will decrease. Under steady-state conditions, portfolio-segment-level aggregation of management’s expected loss
estimates should be stable or track with portfolio-segment growth (contraction and runoff). When management’s expectations of the likely future
economic environment change based on reasonable and supportable forecasts, portfolio allocation may increase (decrease) rapidly between
periods. The establishment of the ACL will be more responsive to deteriorating (improving) economic conditions than prior establishment of the
ALLL, which is based on historical experience and agnostic to future conditions. In dynamic economic environments, users of financial statements
should expect expense (income) in the PCL to be concentrated in fewer quarters than was typical for the PLLL. Users of financial statements should
be aware that this accounting treatment does not determine the ultimate, realized loss or recovery for assets in scope; ASU 2016-13 impacts timing.
Criteria for establishment of specific reserves are still under evaluation. Specific reserve impact to instruments meeting the legacy “impairment”
criteria are not anticipated to change, though the volume of such credits may change before the adoption date due to deterioration (improvement) of
portfolio credit quality. Management is evaluating additional criteria to identify instruments for specific evaluation under the future standard’s
broader allowable criteria.
Management does not currently plan to implement an accounting election to recognize changes in the ACL valuation account due to timing
(prepayment) behavior as interest income (expense).
FASB ASU 2016-02 (Topic 842), “Leases”
In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet
and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical
Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements.
The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for
all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and
classification of expense recognition in the income statement.
The new standard became effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard
to all leases existing at the date of initial application. Management has elected to use the effective date as its date of initial application.
Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and
periods before January 1, 2019.
The new standard provided a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which
permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.
This standard will have a material effect on our Consolidated Balance Sheet and related disclosures but is not expected to have a material impact on
our Consolidated Statement of Income. Any additional assets recorded as a result of adoption is expected to have a negative impact on the
Corporation and Bank capital ratios under current regulatory guidance. On adoption, we have:
•
•
recognized operating lease liabilities of approximately $49.1 million, with corresponding ROU assets of the same amount, based on the
present value of the remaining minimum rental payments under current leasing standards for existing operating leases, and
derecognized $541 thousand of favorable lease assets, $2.2 million in unfavorable lease liabilities, and $2.5 million in deferred rent, with a
corresponding adjustment to the ROU asset for the same amounts.
The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short-term lease recognition
exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes
not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also have elected the practical
expedient to not separate lease and non-lease components for all of our leases.
FASB ASU 2018-12 (Topic 944), “Targeted Improvements to the Accounting for Long-Duration Contracts”
Issued in August 2018, ASU 2018-12 makes targeted improvements to the existing recognition, measurement, presentation, and disclosure
requirements for long-duration contracts issued by an insurance entity. Specifically, the ASU is intended to 1) improve the timeliness of recognizing
changes in the liability for future policy benefits and modify the rate used to discount
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future cash flows, 2) simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account
balance) contracts, 3) simplify the amortization of deferred acquisition costs, and 4) improve the effectiveness of the required disclosures. ASU
2018-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
Early application of the amendments is permitted. As an independent insurance agent, the Corporation does not issue insurance contracts. As a
result, management does not expect the adoption of this ASU to have an impact on our Consolidated Financial Statements and related disclosures.
FASB ASU 2018-13, "Fair Value Measurement Disclosure Framework"
Issued in August 2018, ASU No. 2018-13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure
requirements for fair value measurements. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019.
Early adoption is permitted. Adoption is required on both a prospective and retrospective basis depending on the amendment. Management does
not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.
FASB ASU 2018-14 (Topic 715), "Compensation-Retirement Benefits - Defined Benefit Plans-General"
Issued in August 2018, the ASU 2018-14, modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure
requirements to financial statement users. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is
permitted. Use of the retrospective method is required. Management does not expect the adoption of this ASU to have a material impact on our
Consolidated Financial Statements and related disclosures.
FASB ASU 2018-15 (Topic 350), "Intangibles - Goodwill and Other - Internal-Use Software"
Issued in August 2018, ASU No. 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in
a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for
impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted.
Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. Management is
currently evaluating the potential impact of ASU 2018-15 on our Consolidated Financial Statements and related disclosures.
Note 3 - Business Combinations
Domenick & Associates (“Domenick”)
The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993
and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was
paid at closing, with three contingent cash payments, not to exceed $250 thousand each, to be payable on each of May 1, 2019, May 1, 2020, and
May 1, 2021, subject to the attainment of certain targets during the related periods.
The following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date
of acquisition and the resulting goodwill recorded:
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(dollars in thousands)
Consideration paid:
Cash paid at closing
Contingent payment liability (present value)
Value of consideration
Assets acquired:
Cash and due from banks
Intangible assets - customer relationships
Premises and equipment
Other assets
Total assets
Liabilities assumed:
Accounts payable
Other liabilities
Total liabilities
Net assets acquired
Goodwill resulting from acquisition of Domenick
$
$
$
$
$
750
706
1,456
370
779
1
316
1,466
657
30
687
779
677
As of June 30, 2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Domenick acquisition were final.
Royal Bancshares of Pennsylvania, Inc.
On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the Corporation (the
“Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), pursuant to the Agreement and
Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the “Agreement”) was completed. In accordance with the
Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,101,316 shares of the Corporation’s common stock.
Shareholders of RBPI received 0.1025 shares of Corporation common stock for each share of RBPI Class A common stock and 0.1179 shares of
Corporation common stock for each share of RBPI Class B common stock owned as of the Effective Date of the RBPI Merger, with cash-in-lieu of
fractional shares totaling $7 thousand. Holders of in-the-money options to purchase RBPI Class A common stock received cash totaling $112
thousand. In addition, 1,368,040 warrants to purchase Class A common stock of RBPI, valued at $1.9 million were converted to 140,224 warrants to
purchase Corporation common stock. In accordance with the acquisition method of accounting, assets acquired and liabilities assumed were
preliminarily adjusted to their fair values as of the Effective Date. The excess of consideration paid above the fair value of net assets acquired was
recorded as goodwill. This goodwill is not amortizable nor is it deductible for income tax purposes.
In connection with the RBPI Merger, the consideration paid and the estimated fair value of identifiable assets acquired and liabilities assumed as of
the Effective Date, which include the effects of any measurement period adjustments in accordance with ASC 805-10, are summarized in the
following table:
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(dollars in thousands)
Consideration paid:
Common shares issued (3,101,316)
Cash in lieu of fractional shares
Cash-out of certain options
Fair value of warrants 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
Junior subordinated debentures
Unfavorable lease liability
Other liabilities
Total liabilities
Net assets acquired
Goodwill resulting from acquisition of RBPI
$
$
$
$
$
$
136,768
7
112
1,853
138,740
17,092
121,587
566,228
8,264
34,823
16,550
4,670
566
13,611
783,391
593,172
59,568
15,000
21,416
322
31,381
720,859
62,532
76,208
During the year ended December 31, 2018, the Corporation adjusted certain provisional fair value estimates related to the RBPI Merger. The
following table details the changes in fair value of the net assets acquired and liabilities assumed as of the Effective Date from the amounts
originally reported in the 2017 Annual Report:
(dollars in thousands)
Goodwill resulting from the acquisition of RBPI reported as of December 31, 2017
$
72,762
Value of Consideration Adjustment:
Common shares issued (2,562)
Fair Value Adjustments:
Loans
Other assets
Deferred income taxes
Total Fair Value Adjustments
113
4,145
876
(1,688 )
3,333
Goodwill from the acquisition of RBPI as of December 31, 2018
$
76,208
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As of December 31, 2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the RBPI merger were final.
Methods Used to Estimate the Fair Value of Assets and Liabilities
For information regarding the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities
assumed, refer to Note 2, “Business Combinations,” in the Notes to the Consolidated Financial Statements in the 2017 Annual Report on Form 10-K.
Loans Held for Investment
During the first and third quarters of 2018, new information became available related to certain loans acquired from RBPI which resulted in an
adjustment to the fair value mark applied to acquired loans with evidence of credit quality deterioration. Loans meeting this definition were reviewed
by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value
results in an accretable yield amount. The accretable yield amount will be recognized over the life of the loans or over the recovery period of the
underlying collateral on a level yield basis as an adjustment to yield. As a result of the adjustments, the Corporation recorded increases of $3.0
million and $1.6 million in nonaccretable difference in the first and third quarters of 2018, respectively. The adjustment to the aggregate expected
cash flows less the Effective Date fair value resulted in an increase in accretable yield of $325 thousand. There were no adjustments to the fair value
mark applied to the acquired loan portfolio during the second and fourth quarters of 2018.
The following table provides an updated summary of the acquired impaired loans and leases as of the Effective Date, which include the effects of
any measurement period adjustments in accordance with ASC 805-10, resulting from the RBPI Merger:
(dollars in thousands)
Contractually required principal and interest payments
Contractual cash flows not expected to be collected (nonaccretable difference)
Cash flows expected to be collected
Interest component of expected cash flows (accretable yield)
Fair value of loans acquired with deterioration of credit quality
Harry R. Hirshorn & Company, Inc., d/b/a Hirshorn Boothby (“Hirshorn”)
$
$
40,741
(17,637 )
23,104
(2,644 )
20,460
The acquisition of Hirshorn, an insurance agency headquartered in the Chestnut Hill section of Philadelphia, was completed on May 24, 2017.
Immediately after the acquisition, Hirshorn was merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly
known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was $7.5 million, of which $5.8 million was paid at closing, one
contingent cash payment of $575 thousand was paid during the second quarter of 2018, and two contingent cash payments, not to exceed $575
thousand each, to be payable in 2019 and 2020, subject to certain conditions. The acquisition enhanced the Bank’s ability to offer comprehensive
insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted
areas.
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In connection with the Hirshorn acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets
acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:
(dollars in thousands)
Consideration paid:
Cash paid at closing
Contingent payment liability (present value)
Value of consideration
Assets acquired:
Cash operating accounts
Intangible assets – trade name
Intangible assets – customer relationships
Intangible assets – non-competition agreements
Premises and equipment
Accounts receivable
Other assets
Total assets
Liabilities assumed:
Accounts payable
Other liabilities
Total liabilities
Net assets acquired
Goodwill resulting from acquisition of Hirshorn
$
$
5,770
1,690
7,460
978
195
2,672
41
1,795
192
27
5,900
800
2
802
5,098
2,362
As of December 31, 2017, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Hirshorn acquisition are final.
Pro Forma Income Statements (unaudited)
The following pro forma income statements for the years ended December 31, 2017 and 2016 present the pro forma results of operations of the
combined institution (RBPI and the Corporation) as if the RBPI Merger occurred on January 1, 2016 and January 1, 2017, respectively. The pro forma
income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization, and include
the impacts of measurement period adjustments made in accordance with ASC 805-10. No cost savings or additional merger expenses have been
included in the pro forma results of operations. Due to the immaterial contribution to net income of the Hirshorn acquisition, which occurred during
the two-year period shown in the table, the pro forma effects of these acquisitions are excluded.
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(dollars in thousands, except per share data)
Total interest income
Total interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Total noninterest income
Total noninterest expenses(1)
Income before income taxes
Income tax expense
Net income
Per share data(2):
Weighted-average basic shares outstanding
Dilutive shares
Adjusted weighted-average diluted shares
Basic earnings per common share
Diluted earnings per common share
Year Ended December 31,
2017
2016
171,155 $
20,065
151,090
3,454
147,636
61,423
140,756
68,303
40,841
27,462 $
20,248,879
257,591
20,506,470
1.36 $
1.34 $
157,276
17,086
140,190
5,568
134,622
58,275
124,261
68,636
23,006
45,630
19,958,377
168,499
20,126,876
2.29
2.27
$
$
$
$
(1) Total noninterest expense includes RBPI Net Income Attributable to Noncontrolling Interest and Preferred Stock Series A Accumulated
Dividend and Accretion for pro-forma presentation.
(2) Assumes that the shares of RBPI common stock outstanding as of December 31, 2017 were outstanding for the full twelve month periods
ended December 31, 2017 and 2016, respectively.
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
Occupancy and bank premises
Furniture, fixtures, and equipment
Information technology
Professional fees
Salaries and wages
Other
Total due diligence, merger-related and merger integration expenses
85
Year Ended December 31,
2017
2016
2018
$
$
61 $
271
2,145
365
421
1,450
852
2,196
7,761 $
180
21
—
109
837
3,160
1,285
512
6,104
$
$
—
—
—
—
—
—
—
—
—
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Note 4 - Investment Securities
The amortized cost and fair value of investments, which were classified as available for sale, are as follows:
As of December 31, 2018
(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 investment securities
Total
As of December 31, 2017
(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 investment securities
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
$
$
$
200,026
198,604
11,372
294,076
40,150
1,100
745,328
Amortized
Cost
200,077
153,028
21,352
275,958
37,596
4,813
692,824
$
$
$
$
— $
107
3
554
141
—
805 $
(13 ) $
(2,856 )
(43 )
(4,740 )
(1,039 )
—
(8,691 ) $
Gross
Unrealized
Gains
Gross
Unrealized
Losses
11 $
75
11
887
14
318
1,316 $
$
—
(2,059 )
(53 )
(1,855 )
(948 )
(23 )
(4,938 ) $
Fair Value
200,013
195,855
11,332
289,890
39,252
1,100
737,442
Fair Value
200,088
151,044
21,310
274,990
36,662
5,108
689,202
The following tables present the aggregate amount of gross unrealized losses as of December 31, 2018 and December 31, 2017 on available for sale
investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:
As of December 31, 2018
(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
Total
Less than 12
Months
12 Months
or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
199,912 $
(13 ) $
—
$
— $
199,912
$
(13 )
12,916
(62 )
140,506
(2,794 )
153,422
668
43,276
540
257,312 $
$
—
(352 )
(1 )
(428 ) $
3,989
195,697
27,077
367,269
$
(43 )
(4,388 )
(1,038 )
(8,263 ) $
4,657
238,973
27,617
624,581
$
(2,856 )
(43 )
(4,740 )
(1,039 )
(8,691 )
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As of December 31, 2017
(dollars in thousands)
Obligations of the U.S. government and
agencies
Obligations of state and political
subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Other investment securities
Total
$
Less than 12
Months
12 Months
or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
114,120 $
(1,294 ) $
26,726
$
(765 ) $
140,846
$
(2,059 )
11,144
177,919
5,166
1,805
310,154 $
(29 )
(1,293 )
(47 )
(23 )
(2,686 ) $
2,709
31,787
26,686
—
87,908
$
(24 )
(562 )
(901 )
—
(2,252 ) $
13,853
209,706
31,852
1,805
398,062
$
(53 )
(1,855 )
(948 )
(23 )
(4,938 )
Management evaluates the Corporation’s investment securities that are in an unrealized loss position in order to determine if the decline in fair
value is other than temporary. The investment portfolio includes debt securities issued by U.S. government agencies, U.S. government-sponsored
agencies, state and local municipalities and other issuers. All fixed income investment securities in the Corporation’s investment portfolio are rated
as investment-grade or higher. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which
the fair value has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above are
temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the issuers or collateral.
Management does not believe that these unrealized losses are other-than-temporary. Management does not have the intent to sell these securities
prior to their maturity or the recovery of their cost bases, and believes that it is more likely than not that it will not have to sell these securities prior
to their maturity or the recovery of their cost bases.
As of December 31, 2018 and 2017, securities having a fair value of $123.5 million and $126.2 million, respectively, 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, 2018 and
December 31, 2017, 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(1)
Mutual funds with no stated maturity
Total
December 31, 2018
December 31, 2017
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
$
209,129
180,657
7,258
14,058
411,102
334,226
—
745,328
$
$
209,099 $
177,972
7,268
13,961
408,300
329,142
—
737,442 $
211,019
126,452
23,147
15,439
376,057
313,554
3,213
692,824
$
$
211,019
124,797
22,804
15,421
374,041
311,652
3,509
689,202
(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.
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Proceeds from the sale of available for sale investment securities totaled $7 thousand, $130.9 million, and $276 thousand for the years ended
December 31, 2018, 2017, and 2016, respectively. Net gain (loss) on sale of available for sale investment securities totaled $7 thousand, $101
thousand, and $(77) thousand for the years ended December 31, 2018, 2017, and 2016, respectively.
The amortized cost and fair value of investment securities held to maturity as of December 31, 2018 and December 31, 2017 are as follows:
As of December 31, 2018
(dollars in thousands)
Mortgage-backed securities
As of December 31, 2017
(dollars in thousands)
Mortgage-backed securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
8,684
$
— $
(246) $
Fair Value
8,438
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
7,932
$
5 $
(86) $
Fair Value
7,851
$
$
The following tables present the aggregate amount of gross unrealized losses as of December 31, 2018 and December 31, 2017 on held to maturity
securities classified according to the amount of time those securities have been in a continuous unrealized loss position:
As of December 31, 2018
(dollars in thousands)
Mortgage-backed securities
As of December 31, 2017
Less than 12
Months
12 Months
or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
1,315 $
(4) $
7,123
$
(242) $
8,438
$
(246)
Less than 12
Months
12 Months
or Longer
Total
(dollars in thousands)
Mortgage-backed securities
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
2,756 $
(25) $
3,866
$
(61) $
6,622
$
(86)
The amortized cost and fair value of held to maturity investment securities as of December 31, 2018 and December 31, 2017, by contractual maturity,
are shown below:
(dollars in thousands)
Mortgage-backed securities(1)
December 31, 2018
December 31, 2017
Amortized
Cost
$
8,684
Fair Value
$
8,438 $
Amortized
Cost
7,932
Fair Value
7,851
$
(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, 2018 and December 31, 2017, the Corporation’s investment securities held in trading accounts totaled $7.5 million and $4.6
million, respectively, and primarily consist of deferred compensation trust accounts which are invested in listed mutual funds whose diversification
is at the discretion of the deferred compensation plan participants and a rabbi trust account established to fund certain unqualified pension
obligations. During the first quarter of 2018, $3.2 million of investment securities included within the rabbi trust account were reclassified from
available for sale to trading. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported
through income.
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Note 5 - Loans and Leases
The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in mergers and acquisitions.
These mergers and acquisitions include the December 2017 RBPI Merger, the January 2015 CBH Merger, the November 2012 transaction with First
Bank of Delaware and the July 2010 acquisition of First Keystone Financial, Inc. Certain tables in this Note 5 are presented with a breakdown
between originated and acquired loans and leases.
A. The table below details portfolio loans and leases as of the dates indicated:
(dollars in thousands)
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
$
$
$
$
$
$
December 31, 2018
December 31, 2017
Originated
Acquired
Total Loans and
Leases
Originated
Acquired
Total Loans and
Leases
1,749
$
— $
1,749 $
3,794
$
—
$
3,794
1,327,822
181,506
411,022
174,592
2,094,942
624,643
44,099
121,567
2,885,251
2,887,000
1,204,070
1,682,930
2,887,000
$
$
$
$
329,614 $
25,845
83,333
6,486
445,278
70,941
2,715
22,969
541,903
541,903 $
323,604 $
218,299
541,903 $
1,657,436 $
207,351
494,355
181,078
2,540,220
695,584
46,814
144,536
3,427,154
3,428,903 $
1,527,674 $
1,901,229
3,428,903 $
1,122,327
183,283
360,935
128,266
1,794,811
589,304
35,146
68,035
2,487,296
2,491,090
1,034,542
1,456,548
2,491,090
$
$
$
$
401,050
34,992
97,951
84,188
618,181
130,008
3,007
47,366
798,562
798,562
538,510
260,052
798,562
$
$
$
$
1,523,377
218,275
458,886
212,454
2,412,992
719,312
38,153
115,401
3,285,858
3,289,652
1,573,052
1,716,600
3,289,652
2,226
$
— $
2,226 $
887
$
—
$
887
B. Components of the net investment in leases are detailed as follows:
(dollars in thousands)
Originated
Acquired
Total Leases
Originated
Acquired
Total Leases
December 31, 2018
December 31, 2017
Minimum lease payments receivable $
Unearned lease income
Initial direct costs and deferred fees
Total Leases
$
C. Non-Performing Loans and Leases(1)
$
135,313
(19,388)
5,642
121,567
$
25,372 $
(3,005)
602
22,969 $
160,685 $
(22,393)
6,244
144,536 $
$
75,592
(10,338)
2,781
68,035
$
$
55,219
(9,523)
1,670
47,366
$
130,811
(19,861)
4,451
115,401
December 31, 2018
December 31, 2017
(dollars in thousands)
Originated
Acquired
Total Loans and
Leases
Originated
Acquired
Total Loans and
Leases
Commercial mortgage
$
Home equity lines and loans
Residential mortgage
Commercial and industrial
Consumer
Leases
Total non-performing loans and
leases
$
$
435
3,590
2,813
1,786
45
392
2,133 $
26
639
315
63
583
2,568 $
3,616
3,452
2,101
108
975
$
90
1,221
1,505
826
—
103
$
782
260
2,912
880
—
—
9,061
$
3,759 $
12,820 $
3,745
$
4,834
$
872
1,481
4,417
1,706
—
103
8,579
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(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 $0 and $167 thousand of purchased credit-impaired loans as of December 31, 2018 and December 31, 2017,
respectively, which became non-performing subsequent to acquisition.
D. Purchased Credit-Impaired Loans
The outstanding principal balance and related carrying amount of purchased credit-impaired loans, for which the Corporation applies ASC 310-30,
Accounting for Purchased Loans with Deteriorated Credit Quality, to account for the interest earned, as of the dates indicated, are as follows:
(dollars in thousands)
Outstanding principal balance
Carrying amount(1)
(1) Includes $0 and $1.9 million of purchased credit-impaired loans as of December 31, 2018 and December 31, 2017, 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 $0 and $167 thousand of purchased credit-impaired loans as of December 31, 2018 and
December 31, 2017, respectively, which became non-performing subsequent to acquisition, which are disclosed in Section C, “Non-Performing
Loans and Leases,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report
on Form 10-K, and which also have no accretable yield.
December 31, 2017
$
$
December 31, 2018
46,543
30,849
17,904
12,304
$
$
The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Corporation applies ASC 310-30,
for the year ended December 31, 2018:
(dollars in thousands)
Balance, December 31, 2017
Accretion
Reclassifications from nonaccretable difference
Additions/adjustments
Disposals
Balance, December 31, 2018
E. Age Analysis of Past Due Loans and Leases
Accretable
Discount
4,083
(2,271)
701
329
(145)
2,697
$
$
The following tables present an aging of all portfolio loans and leases as of the dates indicated:
Accruing Loans and Leases
As of December 31, 2018
(dollars in thousands)
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Total portfolio loans and leases
30 – 59
Days
Past Due
60 – 89
Days
Past Due
Over 89
Days
Past Due
$
$
821
92
2,330
—
280
35
641
4,199
$
$
251
—
218
—
332
5
460
1,266
$
$
—
—
—
—
—
—
—
—
$
$
90
Total Past
Due
Current*
1,072 $ 1,653,796
92
203,643
2,548
488,355
—
181,078
612
692,871
40
46,666
1,101
142,460
5,465 $ 3,408,869
Total
Accruing
Loans and
Leases
$ 1,654,868
203,735
490,903
181,078
693,483
46,706
143,561
$ 3,414,334
Nonaccrual
Loans and
Leases
$
$
2,568
3,616
3,452
—
2,101
108
975
12,820
Total
Loans and
Leases
$ 1,657,436
207,351
494,355
181,078
695,584
46,814
144,536
$ 3,427,154
Table of Contents
Accruing Loans and Leases
As of December 31, 2017
(dollars in thousands)
30 – 59
Days
Past Due
60 – 89
Days
Past Due
Over 89
Days
Past Due
Total Past
Due
$
Construction
Residential mortgage
Commercial mortgage
Home equity lines and loans
$
$
$
—
—
—
—
—
—
—
—
*Included as “current” are $3.2 million and $4.1 million of loans and leases as of December 31, 2018 and 2017, respectively, which are
Current*
3,794 $ 1,518,711
216,446
453,004
212,454
716,662
37,047
114,996
7,959 $ 3,269,320
348
1,465
—
944
1,106
302
872
1,481
4,417
—
1,706
—
103
8,579
1,366
338
1,386
—
658
1,106
125
4,979
2,428
10
79
—
286
—
177
2,980
$
$
$
$
$
Total portfolio loans and leases
Commercial and industrial
Consumer
Leases
$
Total
Accruing
Loans and
Leases
$ 1,522,505
216,794
454,469
212,454
717,606
38,153
115,298
$ 3,277,279
Total
Loans and
Leases
$ 1,523,377
218,275
458,886
212,454
719,312
38,153
115,401
$ 3,285,858
Nonaccrual
Loans and
Leases
classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but
has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.
The following tables present an aging of originated portfolio loans and leases as of the dates indicated:
Accruing Loans and Leases
As of December 31, 2018
(dollars in thousands)
Commercial mortgage
$
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Total originated portfolio loans
and leases
30 – 59
Days
Past Due
60 – 89
Days
Past Due
Over 89
Days
Past Due
$
816
25
1,545
—
280
35
350
$
251
—
—
—
332
5
233
$
—
—
—
—
—
—
—
Total Past
Due
Current*
1,067 $ 1,326,320
177,891
406,664
174,592
622,245
44,014
120,592
25
1,545
—
612
40
583
Total
Accruing
Loans and
Leases
$ 1,327,387
177,916
408,209
174,592
622,857
44,054
121,175
Nonaccrual
Loans and
Leases
$
435
3,590
2,813
—
1,786
45
392
Total
Loans and
Leases
$ 1,327,822
181,506
411,022
174,592
624,643
44,099
121,567
$
3,051
$
821
$
—
$
3,872 $ 2,872,318
$ 2,876,190
$
9,061
$ 2,885,251
Accruing Loans and Leases
As of December 31, 2017
(dollars in thousands)
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
$
1,255
26
721
—
439
21
125
$
81
—
—
—
236
—
177
$
—
—
—
—
—
—
—
Total Past
Due
Current*
1,336 $ 1,120,901
182,036
358,709
128,266
587,803
35,125
67,630
26
721
—
675
21
302
Total
Accruing
Loans and
Leases
$ 1,122,237
182,062
359,430
128,266
588,478
35,146
67,932
Nonaccrual
Loans and
Leases
$
90
1,221
1,505
—
826
—
103
Total
Loans and
Leases
$ 1,122,327
183,283
360,935
128,266
589,304
35,146
68,035
Total originated portfolio loans
and leases
—
*Included as “current” are $2.0 million and $4.0 million of loans and leases as of December 31, 2018 and 2017, respectively, which are
3,081 $ 2,480,470
$ 2,483,551
3,745
2,587
494
$
$
$
$
$ 2,487,296
$
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.
91
Table of Contents
The following tables present an aging of acquired portfolio loans and leases as of the dates indicated:
As of December 31, 2018
(dollars in thousands)
Commercial mortgage
$
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Total acquired portfolio loans and
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
$
5
67
785
—
—
—
291
$
—
—
218
—
—
—
227
$
—
—
—
—
—
—
—
$
$
5 $
67
1,003
—
—
—
518
327,476
25,752
81,691
6,486
70,626
2,652
21,868
327,481
25,819
82,694
6,486
70,626
2,652
22,386
$
2,133
26
639
—
315
63
583
329,614
25,845
83,333
6,486
70,941
2,715
22,969
1,148
$
445
$
—
$
1,593 $
536,551
$
538,144
$
3,759
$
541,903
As of December 31, 2017
(dollars in thousands)
Commercial mortgage
$
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Total acquired portfolio loans and
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
$
111
312
665
—
219
1,085
—
$
2,347
10
79
—
50
—
—
$
—
—
—
—
—
—
—
$
$
2,458 $
322
744
—
269
1,085
—
397,810
34,410
94,295
84,188
128,859
1,922
47,366
400,268
34,732
95,039
84,188
129,128
3,007
47,366
$
782
260
2,912
—
880
—
—
401,050
34,992
97,951
84,188
130,008
3,007
47,366
2,392
$
2,486
$
—
$
4,878 $
788,850
$
793,728
$
4,834
$
798,562
*Included as “current” are $1.2 million and $102 thousand of loans and leases as of December 31, 2018 and 2017, respectively, which are
classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but
has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.
F. Allowance for Loan and Lease Losses (the “Allowance”)
The following tables detail the roll-forward of the Allowance for the year ended December 31, 2018 and December 31, 2017:
(dollars in thousands)
Balance, December 31, 2017
Charge-offs
Recoveries
Provision for loan and lease losses
Balance, December 31, 2018
(dollars in thousands)
Balance, December 31, 2016
Charge-offs
Recoveries
Provision for loan and lease losses
Balance, December 31, 2017
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
$
$
$
7,550
(331)
16
332
7,567
$
1,086 $
(333)
2
248
1,003 $
1,926
(354)
56
185
1,813
$
937
—
2
546
1,485
Commercial
and
Industrial
Construction
$
$
Consumer Leases
$
$
246
(311)
$
742
(3,132)
5,038
(1,374)
24
1,773
5,461
$
10
284
229
$
433
3,825
1,868
$
$
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
$
$
6,227
$
(55)
12
1,366
7,550
$
1,255 $
(675)
5
501
1,086 $
1,917
(326)
165
170
1,926
$
Construction
$
$
2,233
—
4
(1,300)
$
937
Commercial
and
Industrial
Consumer Leases
$
$
153
(154)
$
559
(1,224)
5,142
(692)
25
563
5,038
$
8
239
246
$
328
1,079
742
$
Total
17,525
(5,835)
543
7,193
19,426
Total
17,486
(3,126)
547
2,618
17,525
The following tables detail the allocation of the Allowance for all portfolio loans and leases by portfolio segment based on the methodology used
to evaluate the loans and leases for impairment as of December 31, 2018 and December 31, 2017:
92
Table of Contents
As of December 31, 2018
(dollars in thousands)
Allowance on loans and leases:
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
Individually evaluated for impairment $
—
$
162 $
272
$
—
$
—
$
28
$
—
$
462
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
As of December 31, 2017
(dollars in thousands)
Allowance on loans and leases:
7,567
—
7,567
$
$
841
—
1,003 $
1,541
—
1,813
$
1,485
—
1,485
$
5,461
—
5,461
$
201
—
229
$
1,868
—
1,868
$
18,964
—
19,426
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
Individually evaluated for impairment $
—
$
19 $
230
$
—
$
5
$
4
$
—
$
258
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
7,550
—
7,550
$
$
1,067
—
1,086 $
1,696
—
1,926
$
937
—
937
$
5,033
—
5,038
$
242
—
246
$
742
—
742
$
17,267
—
17,525
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
The following tables detail the carrying value for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate
the loans and leases for impairment as of December 31, 2018 and December 31, 2017:
As of December 31, 2018
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
7,008
$
4,998
$
6,608
$
—
$
2,629
$
134
$
—
$
21,377
1,642,117
8,311
$ 1,657,436
$
201,841
512
207,351
487,747
—
$ 494,355
$
178,673
2,405
181,078
$
691,879
1,076
695,584
$
46,680
—
46,814
144,536
—
$ 144,536
3,393,473
12,304
$3,427,154
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
As of December 31, 2017
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
2,128
$
2,162
$
7,726
$
—
$
1,897
$
27
$
—
$
13,940
1,503,825
17,424
$ 1,523,377
$
215,604
509
218,275
451,160
—
$ 458,886
$
204,088
8,366
212,454
$
712,865
4,550
719,312
$
38,126
—
38,153
115,401
—
$ 115,401
3,241,069
30,849
$3,285,858
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
The following tables detail the allocation of the Allowance for originated portfolio loans and leases by portfolio segment based on the
methodology used to evaluate the loans and leases for impairment as of December 31, 2018 and December 31, 2017:
As of December 31, 2018
(dollars in thousands)
Allowance on loans and leases:
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
Individually evaluated for impairment $
—
$
162 $
175
$
—
$
—
$
28
$
—
$
365
Collectively evaluated for
impairment
Total
7,567
7,567
$
$
841
1,003 $
1,541
1,716
$
1,485
1,485
$
5,461
5,461
$
201
229
$
1,868
1,868
$
18,964
19,329
93
Table of Contents
As of December 31, 2017
(dollars in thousands)
Allowance on loans and leases:
Commercial
Mortgage
Home
Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
Individually evaluated for impairment $
—
$
19 $
180
$
—
$
5
$
4
$
—
$
208
Collectively evaluated for
impairment
Total
7,550
7,550
$
$
1,067
1,086 $
1,696
1,876
$
937
937
$
5,033
5,038
$
242
246
$
742
742
17,267
$ 17,475
The following tables detail the carrying value for originated portfolio loans and leases by portfolio segment based on the methodology used to
evaluate the loans and leases for impairment as of December 31, 2018 and December 31, 2017:
As of December 31, 2018
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total
As of December 31, 2017
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
4,874
$
4,972
$
5,106
$
—
$
2,314
$
71
$
—
$
17,337
1,322,948
$ 1,327,822
$
176,534
181,506
405,916
$ 411,022
$
174,592
174,592
$
622,329
624,643
44,028
$ 44,099
121,567
$ 121,567
2,867,914
$ 2,885,251
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
1,345
$
1,902
$
4,418
$
—
$
1,186
$
27
$
—
$
8,878
1,120,982
$ 1,122,327
$
181,381
183,283
356,517
$ 360,935
$
128,266
128,266
$
588,118
589,304
35,119
$ 35,146
68,035
$ 68,035
2,478,418
$ 2,487,296
The following tables detail the allocation of the Allowance for acquired portfolio loans and leases by portfolio segment based on the methodology
used to evaluate the loans and leases for impairment as of December 31, 2018 and December 31, 2017:
As of December 31, 2018
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
$
—
$
— $
97
$
—
$
—
$
—
$
—
$
—
—
—
$
—
—
— $
—
—
97
$
—
—
—
$
—
—
—
$
—
—
—
$
—
—
—
$
97
—
—
97
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
As of December 31, 2017
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
$
—
$
— $
50
$
—
$
—
$
—
$
—
$
—
—
—
$
—
—
— $
—
—
50
$
—
—
—
$
—
—
—
$
—
—
—
$
—
—
—
$
50
—
—
50
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
The following tables detail the carrying value for acquired portfolio loans and leases by portfolio segment based on the methodology used to
evaluate the loans and leases for impairment as of December 31, 2018 and December 31, 2017:
94
Table of Contents
As of December 31, 2018
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
2,134
$
26 $
1,502
$
—
$
315
$
63
$
—
$
4,040
319,169
8,311
329,614
$
$
25,307
512
25,845 $
81,831
—
83,333
$
4,081
2,405
6,486
$
69,550
1,076
70,941
$
2,652
—
2,715
22,969
—
$ 22,969
525,559
12,304
$ 541,903
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
As of December 31, 2017
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Purchased credit-impaired(1)
Total
Commercial
Mortgage
Home Equity
Lines and
Loans
Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer
Leases
Total
$
$
783
$
260 $
3,308
$
—
$
711
$
—
$
—
$
5,062
382,843
17,424
401,050
$
34,223
509
34,992 $
94,643
—
97,951
$
75,822
8,366
84,188
$
124,747
4,550
130,008
$
3,007
—
3,007
47,366
—
$ 47,366
762,651
30,849
$ 798,562
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
As part of the process of determining the Allowance for the different segments of the loan and lease portfolio, Management considers certain credit
quality indicators. Periodic reviews of the individual loans are performed by both in-house staff as well as external loan reviewers. The result of
these reviews is reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:
•
•
•
Pass – Loans considered satisfactory with no indications of deterioration.
Special mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit
position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor
or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the
debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
• Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable.
The following tables detail the carrying value of all portfolio loans and leases by portfolio segment based on the credit quality indicators used to
determine the Allowance as of December 31, 2018 and December 31, 2017:
Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018
(dollars in thousands)
Commercial mortgage
Home equity loans and lines
Residential
Construction
Commercial & Industrial
Consumer
Leases
Total
Pass
1,635,068
203,037
490,789
171,353
684,444
46,588
143,561
3,374,840
$
$
$
Special Mention
631
—
—
938
2,737
—
—
4,306
$
Substandard
Doubtful
Total
$
$
20,639
4,314
3,566
8,787
8,402
226
975
46,909
$
$
1,098
—
—
—
1
—
—
1,099
$
$
1,657,436
207,351
494,355
181,078
695,584
46,814
144,536
3,427,154
95
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As of December 31, 2017
(dollars in thousands)
Commercial mortgage
Home equity loans and lines
Residential
Construction
Commercial & Industrial
Consumer
Leases
Total
Pass
1,490,862
216,794
454,469
193,227
711,145
38,153
115,298
3,219,948
$
$
Credit Risk Profile by Internally Assigned Grade
$
Special Mention
13,448
—
—
3,902
889
—
—
18,239
$
Substandard
Doubtful
Total
$
$
18,194
1,481
4,417
15,325
6,013
—
103
45,533
$
$
873
—
—
—
1,265
—
—
2,138
$
$
1,523,377
218,275
458,886
212,454
719,312
38,153
115,401
3,285,858
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, 2018 and December 31, 2017:
Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018
(dollars in thousands)
Commercial mortgage
Home equity loans and lines
Residential
Construction
Commercial & Industrial
Consumer
Leases
Total
As of December 31, 2017
(dollars in thousands)
Commercial mortgage
Home equity loans and lines
Residential
Construction
Commercial & Industrial
Consumer
Leases
Total
Pass
1,321,973
177,916
408,095
167,272
615,817
43,936
121,175
2,856,184
Pass
1,114,171
182,062
359,430
126,260
586,896
35,146
67,932
2,471,897
$
$
$
$
$
Special Mention
631
—
—
938
2,511
—
—
4,080
$
Substandard
Doubtful
Total
$
$
5,218
3,590
2,927
6,382
6,314
163
392
24,986
$
$
—
—
—
—
1
—
—
1
$
$
1,327,822
181,506
411,022
174,592
624,643
44,099
121,567
2,885,251
Credit Risk Profile by Internally Assigned Grade
$
Special Mention
—
—
—
—
664
—
—
664
$
Substandard
Doubtful
Total
$
$
8,156
1,221
1,505
2,006
1,389
—
103
14,380
$
$
—
—
—
—
355
—
—
355
$
$
1,122,327
183,283
360,935
128,266
589,304
35,146
68,035
2,487,296
96
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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, 2018 and December 31, 2017:
Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018
(dollars in thousands)
Commercial mortgage
Home equity loans and lines
Residential
Construction
Commercial & Industrial
Consumer
Leases
Total
As of December 31, 2017
(dollars in thousands)
Commercial mortgage
Home equity loans and lines
Residential
Construction
Commercial & Industrial
Consumer
Leases
Total
Pass
313,095
25,121
82,694
4,081
68,627
2,652
22,386
518,656
Pass
376,691
34,732
95,039
66,967
124,249
3,007
47,366
748,051
$
$
$
$
G. Troubled Debt Restructurings (“TDRs”)
$
Special Mention
—
—
—
—
226
—
—
226
$
Substandard
Doubtful
Total
$
$
15,421
724
639
2,405
2,088
63
583
21,923
$
$
1,098
—
—
—
—
—
—
1,098
$
$
329,614
25,845
83,333
6,486
70,941
2,715
22,969
541,903
Credit Risk Profile by Internally Assigned Grade
$
Special Mention
13,448
—
—
3,902
225
—
—
17,575
$
Substandard
Doubtful
Total
$
$
10,038
260
2,912
13,319
4,624
—
—
31,153
$
$
873
—
—
—
910
—
—
1,783
$
$
401,050
34,992
97,951
84,188
130,008
3,007
47,366
798,562
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, 2018
December 31, 2017
$
$
1,217 $
9,745
10,962 $
3,289
5,800
9,089
97
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The following table presents information regarding loans and leases categorized as TDRs for modifications made during the year ended
December 31, 2018:
(dollars in thousands)
Commercial mortgage
Home equity lines and loans
Residential
Commercial and industrial
Consumer
Leases
Total
For the Year Ended December 31, 2018
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
1
3
6
2
1
4
17
$
$
4,439
961
620
156
20
173
6,369
$
$
4,439
961
640
156
20
173
6,389
The following table presents information regarding the types of loan and lease modifications made for the year ended December 31, 2018:
Commercial mortgage
Home equity lines and loans
Residential
Commercial and industrial
Consumer
Leases
Total
Number of Contracts
Interest Rate
Change and
Term Extension
Interest Rate
Change and/or
Interest-Only
Period
Contractual
Payment
Reduction
(Leases only)
Temporary
Payment
Deferral
Loan Term
Extension
1
—
2
1
—
—
4
—
3
1
1
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
4
4
—
—
3
—
1
—
4
The following table presents information regarding loans and leases categorized as TDRs for modifications made during the year ended
December 31, 2017:
(dollars in thousands)
Residential
Home equity lines and loans
Leases
Total
For the Year Ended December 31, 2017
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
3
3
4
10
$
$
432
582
100
1,114
$
$
432
582
100
1,114
98
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The following table presents information regarding the types of loan and lease modifications made for the year ended December 31, 2017:
Residential
Home equity lines and loans
Leases
Total
Number of Contracts
Interest Rate
Change and
Term
Extension
Interest Rate
Change and/or
Interest-Only
Period
Contractual
Payment
Reduction
(Leases only)
Temporary
Payment
Deferral
1
—
—
1
1
3
—
4
—
—
4
4
—
—
—
—
Loan Term
Extension
1
—
—
1
During the year ended December 31, 2018, one home equity loan and one lease with principal balances of $25 thousand and $49 thousand,
respectively, which had been previously modified to troubled debt restructuring, defaulted and were charged off.
H. Impaired Loans
The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related allowance for loan
and lease losses and interest income recognized for the year ended December 31, 2018, 2017 and 2016 (purchased credit-impaired loans are not
included in the tables):
As of or for the Year Ended December
31, 2018
(dollars in thousands)
Impaired loans with related allowance:
Home equity lines and loans
Residential mortgage
Consumer
Total
Impaired loans(1) without related
allowance:
Recorded
Investment(2)
Principal
Balance
Related
Allowance
Average
Principal
Balance
Interest
Income
Recognized
Cash-Basis
Interest
Income
Recognized
$
$
1,280 $
1,966
50
3,296 $
1,280
1,966
50
3,296
$
$
162 $
272
28
462 $
640
1,983
56
2,679
$
$
27 $
94
4
125 $
—
—
—
—
$
$
Commercial mortgage
Home equity lines and loans
Residential mortgage
Commercial and industrial
Consumer
—
7,264
—
3,724
—
4,728
—
3,803
—
86
—
19,605
—
22,901
(1) The table above does not include the recorded investment of $1.2 million of impaired leases without a related allowance for loan and lease
losses.
7,007 $
3,718
4,641
2,629
83
18,078 $
21,374 $
320 $
67
133
126
3
649 $
774 $
— $
—
—
—
—
— $
462 $
7,010
3,537
4,750
3,349
100
18,746
21,425
Grand total
$
$
$
$
Total
$
$
$
(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge-offs and interest
payments on non-performing loans that have been applied to principal.
99
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As of or for the Year Ended December
31, 2017
(dollars in thousands)
Impaired loans with related allowance:
Home equity lines and loans
Residential mortgage
Commercial and industrial
Consumer
Total
Impaired loans(1) without related
allowance:
$
$
Recorded
Investment(2)
Principal
Balance
Related
Allowance
Average
Principal
Balance
Interest
Income
Recognized
Cash-Basis
Interest
Income
Recognized
577 $
2,436
18
27
3,058 $
577
2,436
18
27
3,058
$
$
19 $
230
5
4
258 $
232
2,467
19
28
2,746
$
$
7 $
127
1
1
136 $
$
Commercial mortgage
Home equity lines and loans
Residential mortgage
Commercial and industrial
2,218
1,645
5,529
3,613
13,005
16,063
(1) The table above does not include the recorded investment of $272 thousand of impaired leases without a related allowance for loan and
lease losses.
2,128 $
1,585
5,290
1,879
10,882 $
13,940 $
85 $
38
191
35
349 $
485 $
— $
—
—
—
— $
258 $
2,205
1,636
4,994
2,079
10,914
13,660
Grand total
$
$
$
$
Total
$
$
$
$
(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge-offs and interest
payments on non-performing loans that have been applied to principal.
As of or for the Year Ended December
31, 2016
(dollars in thousands)
Impaired loans with related allowance:
Residential mortgage
Commercial and industrial
Consumer
Total
Impaired loans(1) without related
allowance:
$
$
Recorded
Investment(2)
Principal
Balance
Related
Allowance
Average
Principal
Balance
Interest
Income
Recognized
Cash-Basis
Interest
Income
Recognized
622 $
84
31
737 $
622
84
31
737
$
$
73 $
5
8
86 $
639
103
33
775
$
$
27 $
5
2
34 $
$
Commercial mortgage
Home equity lines and loans
Residential mortgage
Commercial and industrial
1,577
2,778
6,970
3,692
15,017
15,754
(1) The table above does not include the recorded investment of $240 thousand of impaired leases without a related allowance for loan and
lease losses
1,577 $
2,354
6,644
2,862
13,437 $
14,174 $
70 $
25
276
146
517 $
551 $
1,583
2,833
7,544
8,362
20,322
21,097
— $
—
—
— $
86 $
Grand total
$
$
$
$
Total
$
$
$
$
(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge-offs and interest
payments on non-performing loans that have been applied to principal.
100
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Table of Contents
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
Construction
Commercial and industrial
Consumer
Leases
Total
(dollars in thousands)
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial and industrial
Consumer
Leases
Total
Note 6 - 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
As of December 31, 2018
Outstanding
Principal
Remaining
Loan Mark
Recorded
Investment
339,241 $
28,212
86,111
6,780
72,948
2,828
23,695
559,815 $
(9,627 ) $
(2,367 )
(2,778 )
(294 )
(2,007 )
(113 )
(726 )
(17,912 ) $
329,614
25,845
83,333
6,486
70,941
2,715
22,969
541,903
As of December 31, 2017
Outstanding
Principal
Remaining
Loan Mark
Recorded
Investment
412,263 $
37,944
101,523
86,081
141,960
3,051
50,530
833,352 $
(11,213 ) $
(2,952 )
(3,572 )
(1,893 )
(11,952 )
(44 )
(3,164 )
(34,790 ) $
401,050
34,992
97,951
84,188
130,008
3,007
47,366
798,562
$
$
$
$
December 31,
2018
2017
$
$
$
11,219
40,947
44,862
25,186
4,400
(60,966 )
65,648
$
9,522
31,376
38,775
26,636
4,171
(56,022 )
54,458
Depreciation and amortization expense related to the assets detailed in the above table for the years ended December 31, 2018, 2017, and 2016
amounted to $6.6 million, $5.7 million, and $5.8 million, respectively.
101
Table of Contents
B. Future minimum cash rent commitments under various operating leases as of December 31, 2018 are as follows:
(dollars in thousands)
2019
2020
2021
2022
2023
2024 and thereafter
Total
Commitments
5,211
4,700
4,478
4,203
4,051
41,845
64,488
$
$
Rent expense on leased premises and equipment for the years ended December 31, 2018, 2017, and 2016 amounted to $5.2 million, $4.7 million, and
$4.6 million, respectively.
Note 7 - Mortgage Servicing Rights
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) / Recovery
Balance, December 31
Fair value
Residential mortgage loans serviced for others
2018
2017
2016
$
$
$
$
$
5,861
16
(803 )
(27 )
5,047
6,277
578,788
$
$
$
$
5,582
1,025
(791 )
45
5,861
6,397
650,703
$
$
$
5,142
1,321
(750 )
(131 )
5,582
6,154
631,889
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
2018
2017
2016
$
$
(1,760 ) $
(103 )
76
(1,787 ) $
(1,805 ) $
(52 )
97
(1,760 ) $
(1,674 )
(715 )
584
(1,805 )
As of December 31, 2018 and 2017, 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)(1)
Impact on fair value:
10% adverse change
20% adverse change
Discount rate
Impact on fair value:
10% adverse change
20% adverse change
(1) Represents the weighted average prepayment rate for the life of the MSR asset.
102
December 31,
2018
2017
$
6,277
6.7
9.1 %
$
$
(124 )
(257 )
9.55 %
(234 )
(451 )
$
$
6,397
6.1
10.3 %
(194 )
(394 )
9.55 %
(225 )
(434 )
$
$
$
$
$
Table of Contents
At December 31, 2018 and 2017, the fair value of the MSRs was $6.3 million and $6.4 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.
Note 8 - Goodwill and Intangible Assets
The following table presents activity in the Corporation's goodwill by its reporting units and finite-lived and indefinite-lived intangible assets, other
than MSRs, for the years ended December 31, 2018 and 2017:
(dollars in thousands)
Goodwill – Wealth
Goodwill – Banking
Goodwill – Insurance
Total Goodwill
Core deposit intangible
Customer relationships
Non-compete agreements
$
$
Trade names
Domain name
Favorable lease assets
Total Intangible Assets $
$
$
$
Grand Total
(dollars in thousands)
Goodwill – Wealth
Goodwill – Banking
Goodwill – Insurance
Total Goodwill
Core deposit intangible
Customer relationships
Non-compete agreements
Trade names
Domain name
Favorable lease assets
Total Intangible Assets $
Grand total
$
Balance
December 31,
2017
Additions
Adjustments
Amortization
Balance
December 31,
2018
20,412 $
153,545
5,932
179,889 $
7,380
14,173
1,319
2,322
151
621
25,966 $
205,855 $
—
—
677
677
—
1,145
—
—
—
—
1,145
1,822
$
$
$
$
— $
3,446
—
3,446 $
—
—
—
—
—
—
— $
3,446 $
$
$
—
—
—
—
(1,474 )
(1,711 )
(218 )
(173 )
—
(80 )
(3,656 ) $
(3,656 ) $
20,412
156,991
6,609
184,012
5,906
13,607
1,101
2,149
151
541
23,455
207,467
Balance
December 31,
2016
Additions
Adjustments
Amortization
Balance
December 31,
2017
20,412 $
80,783
3,570
104,765 $
3,447
13,056
1,634
2,165
—
103
20,405 $
125,170 $
—
72,762
2,362
75,124
4,670
2,672
41
195
151
566
8,295
83,419
$
$
$
$
— $
—
—
— $
—
—
—
—
—
—
— $
— $
103
$
$
—
—
—
—
(737 )
(1,555 )
(356 )
(38 )
—
(48 )
(2,734 ) $
(2,734 ) $
20,412
153,545
5,932
179,889
7,380
14,173
1,319
2,322
151
621
25,966
205,855
Amortization
Period
Indefinite
Indefinite
Indefinite
10 years
10 to 20 years
5 to 10 years
3 to 5 years
Indefinite
1 to 16 years
Amortization
Period
Indefinite
Indefinite
Indefinite
10 years
10 to 20 years
5 to 10 years
3 years to Indefinite
Indefinite
1 to 16 years
Table of Contents
Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31, 2018 using generally
accepted valuation methods. Management determined that no impairment of goodwill or indefinite-lived intangible assets was identified as a result
of the annual impairment analyses. Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that
would suggest possible impairment, in which case it would be tested as of the date of the triggering event. For the two months ended December 31,
2018, management determined there were no events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets.
Amortization expense on finite-lived intangible assets was $3.7 million, $2.7 million, and $3.5 million for the years ended December 31, 2018, 2017,
and 2016, respectively. As of October 1, 2018, due to changes in branding strategies, the estimate of the remaining useful lives of certain trade name
intangible assets were changed from indefinite to five years. The effect of this change in estimate increased amortization of intangible asset expense
by $108 thousand. The estimated aggregate amortization expense related to finite-lived intangible assets for each of the five succeeding fiscal years
ending December 31 is:
(dollars in thousands)
Fiscal year ending
2019
2020
2021
2022
Thereafter
Note 9 - Other Real Estate Owned
Fiscal Year Amount
$
$
$
$
$
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
December 31,
2018
2017
$
$
304 $
372
(89 )
(170 )
417 $
4,065
3,928
3,860
3,643
7,267
1,017
560
(121 )
(1,152 )
304
As of December 31, 2018, the balance of OREO is comprised of one residential property and two manufactured homes, which resulted from loan
foreclosures.
Note 10 - Deposits
A. The following table details the components of deposits:
(dollars in thousands)
Interest-bearing demand
Money market
Savings
Retail time deposits
Wholesale non-maturity deposits
Wholesale time deposits
Total interest-bearing deposits
Noninterest-bearing deposits
Total deposits
As of December 31,
2018
2017
$
$
$
664,749 $
862,644
247,081
542,702
55,031
325,261
2,697,468 $
901,619
3,599,087 $
481,336
862,639
338,572
532,202
62,276
171,929
2,448,954
924,844
3,373,798
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The aggregate amount of deposit and mortgage escrow overdrafts included as loans were $408 thousand and $669 thousand as of December 31,
2018 and 2017, respectively.
The aggregate amount of time deposits in denominations over $250 thousand were $324.4 million and $193.3 million as of December 31, 2018 and
2017, respectively.
B. The following tables detail the maturities of retail time deposits:
(dollars in thousands)
Maturing during:
2019
2020
2021
2022
2023 and thereafter
Total
C. The following tables detail the maturities of wholesale time deposits:
(dollars in thousands)
Maturing during:
2019
Total
As of December 31, 2018
Less than
$100
$100
or more
206,050 $
33,003
28,072
5,325
3,968
276,418 $
208,455
23,096
31,238
1,945
1,550
266,284
As of December 31, 2018
Less than
$100
$100
or more
3,139 $
3,139 $
322,122
322,122
$
$
$
$
Note 11 - Short-Term Borrowings and Long-Term FHLB Advances
A. Short-term borrowings
The Corporation’s short-term borrowings (original maturity of one year or less), which consist of funds obtained from overnight repurchase
agreements with commercial customers, FHLB advances with original maturities of one year or less, and overnight fed funds, are detailed below.
A summary of short-term borrowings is as follows:
(dollars in thousands)
Repurchase agreements(1) – commercial customers
Short-term FHLB advances
Total short-term borrowings
(1) 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
105
$
$
$
$
$
As of December 31,
2018
2017
22,717 $
229,650
252,367 $
25,865
212,000
237,865
As for the Year Ended December 31,
2018
2017
252,367
302,932
186,290
$
$
$
2.23 %
1.90 %
237,865
237,865
128,008
1.40 %
1.09 %
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Average balances outstanding during the year represent daily average balances and average interest rates represent interest expense divided by
the related average balance.
B. Long-term FHLB Advances
The following table presents the remaining periods until maturity of long-term FHLB advances (original maturities exceeding one year):
(dollars in thousands)
Within one year
Over one year through five years
Total
The following table presents rate and maturity information on long-term FHLB advances:
As of December 31,
2018
2017
$
$
28,105 $
27,269
55,374 $
83,766
55,374
139,140
Description
Bullet maturity – fixed rate
Convertible-fixed(2)
Total
Maturity Range(1)
To
From
5/20/2019
N/A
8/24/2021
N/A
Weighted
Average
Rate(1)
Coupon Rate(1)
To
From
1.76 %
N/A
2.13 % $
1.40 %
N/A
N/A
$
Balance at
December 31,
2018
2017
55,374 $
—
55,374 $
118,131
21,009
139,140
(1) Maturity range, weighted average rate and coupon rate range refers to December 31, 2018 balances.
(2) FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an adjustable interest rate
indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay these advances, without penalty, if the
FHLB elects to convert the interest rate to an adjustable rate. As of December 31, 2018, substantially all FHLB advances with this convertible
feature are subject to conversion in fiscal 2018. These advances are included in the maturity ranges in which they mature, rather than the period
in which they are subject to conversion.
C. Other Borrowings Information
In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of capital stock held was
$14.5 million at December 31, 2018, and $20.1 million at December 31, 2017. The carrying amount of the FHLB stock approximates its redemption
value.
The level of required investment in FHLB stock is based on the balance of outstanding loans the Corporation has from the FHLB. Although FHLB
stock is a financial instrument that represents an equity interest in the FHLB, it does not have a readily determinable fair value. FHLB stock is
generally viewed as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, its value should be determined based on the
ultimate recoverability of the par value rather than by recognizing temporary declines in value.
The Corporation had a maximum borrowing capacity with the FHLB of $1.53 billion as of December 31, 2018 of which the unused capacity was $1.25
billion. In addition, there were $79.0 million in the overnight federal funds line available and $140.4 million of Federal Reserve Discount Window
capacity.
Note 12 – Subordinated Notes
On December 13, 2017, the Corporation completed the issuance of $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated
notes due 2027 (the "2027 Notes") in an underwritten public offering. On August 6, 2015, the Corporation completed the issuance of $30.0 million in
aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the "2025 Notes") in a private placement transaction to
institutional accredited investors. The net proceeds of both offerings increased Tier II regulatory capital at the Corporation level.
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The following tables detail the subordinated notes, including debt issuance costs, as of December 31, 2018 and 2017:
(dollars in thousands)
Subordinated notes – due 2027
Subordinated notes – due 2025
Total subordinated notes
December 31, 2018
December 31, 2017
Balance
Rate(1)(2)
Balance
Rate(1)(2)
$
$
68,885
29,641
98,526
4.25 % $
4.75 %
$
68,829
29,587
98,416
4.25 %
4.75 %
(1) The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until December 14, 2022, and will thereafter bear
interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 2.050% until December 15,
2027, or any early redemption date.
(2) The 2025 Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until August 14, 2020, and will thereafter bear
interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 3.068% until August 15,
2025, or any early redemption date.
Note 13 – Junior Subordinated Debentures
In connection with the RBPI Merger, the Corporation acquired Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II
(“Trust II”) (collectively, the “Trusts”), which were utilized for the sole purpose of issuing and selling capital securities representing preferred
beneficial interests. Although the Corporation owns $774 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated
into the Corporation’s consolidated financial statements as the Corporation is not deemed to be the primary beneficiary of these entities. In
connection with the issuance and sale of the capital securities, RBPI issued, and the Corporation assumed as a result of the RBPI Merger, junior
subordinated debentures to the Trusts of $10.7 million each, totaling $21.4 million representing the Corporation’s maximum exposure to loss. The
junior subordinated debentures incur interest at a coupon rate of 4.94% as of December 31, 2018. The rate resets quarterly based on 3-month LIBOR
plus 2.15%.
Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities initially bearing fixed and/or fixed/floating
interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of
$387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the
Corporation. As a result of the RBPI Merger, the Corporation has fully and unconditionally guaranteed all of the obligations of the Trusts, including
any distributions and payments on liquidation or redemption of the capital securities.
The rights of holders of common securities of the Trusts are subordinate to the rights of the holders of capital securities only in the event of a
default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities. The capital and common securities
of the Trusts are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier
dissolved, the Trusts will dissolve on December 15, 2034. The junior subordinated debentures are the sole assets of Trusts, mature on December 15,
2034, and may be called at par by the Corporation any time after December 15, 2009. The Corporation records its investments in the Trusts’ common
securities of $387 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.
Note 14 - Derivatives and Hedging Activities
Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Management manages these risks as part of its
asset and liability management process and through credit policies and procedures. Management seeks to minimize counterparty credit risk by
establishing credit limits and collateral agreements, and utilizes certain derivative financial instruments to enhance its ability to manage interest rate
risk that exists as part of its ongoing business operations. The derivative transactions entered into by the Corporation are an economic hedge of a
derivative offerings to Bank customers. The Corporation does not use derivative financial instruments for trading purposes.
Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps that allow commercial loan customers to effectively
convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Corporation originates
variable-rate loans with customers in addition to interest rate swap agreements, which serve to effectively swap the customers’ variable-rate loans
into fixed-rate loans. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge its
exposure on the variable and fixed
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components of the customer agreements. The interest rate swaps with both the customers and third parties are not designated as hedges under
FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying
benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value
adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of
December 31, 2018, there were no fair value adjustments related to credit quality.
Risk Participation Agreements. The Corporation may enter into a risk participation agreement (“RPA”) with another institution as a means to
assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income
commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk
associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the
Corporation may purchase a RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type
of derivative is referred to as an “RPA purchased.”
The following tables detail the derivative instruments as of December 31, 2018 and December 31, 2017:
(dollars in thousands)
Derivatives not designated as hedging instruments
As of December 31, 2018:
Customer derivatives – interest rate swaps
RPAs sold
RPAs purchased
Total derivatives
As of December 31, 2017:
Customer derivatives – interest rate swaps
RPAs sold
RPAs purchased
Total derivatives
Asset Derivatives
Liability Derivatives
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
$
$
$
$
369,623
—
35,305
404,928
$
$
12,550 $
—
71
12,621 $
369,623
854
—
370,477
$
$
124,627
—
14,710
139,337
$
$
1,895 $
—
21
1,916 $
124,627
899
—
125,526
$
$
12,549
2
—
12,551
1,895
3
—
1,898
The Corporation has International Swaps and Derivatives Association agreements with third parties that requires a minimum dollar transfer amount
upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties at
December 31, 2018 and December 31, 2017 was $8.8 million and $1.3 million, respectively. The amount of collateral posted with third parties is
deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a
change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure
contingencies and entered into with third parties was $11.5 million and $1.6 million as of December 31, 2018 and December 31, 2017, respectively.
Note 15 - Pension and Postretirement Benefit Plans
A. General Overview – The Corporation sponsors two non-qualified defined-benefit supplemental executive retirement plans (“SERP I” and “SERP
II”) which are restricted to certain senior officers of the Corporation and a postretirement benefit plan (“PRBP”) that covers certain retired
employees and a group of current employees.
Effective March 31, 2008, the Corporation amended SERP I to freeze further increases in the defined benefit amounts to all participants. Effective
March 31, 2013, the Corporation curtailed SERP II, as further increases to the defined benefit amounts to over 20% of the participants were frozen.
The PRBP was closed to new participants in 1994. In 2007, the Corporation amended the PRBP to allow for settlement of obligations to certain
current and retired employees. Certain retired participant obligations were settled in 2007 and current employee obligations were settled in 2008.
The following table provides information with respect to our SERP and PRBP, including benefit obligations and funded status, net periodic pension
costs, plan assets, cash flows, amortization information and other accounting items.
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B. Actuarial Assumptions used to determine benefit obligations as of December 31 of the years indicated:
SERP I and SERP II
PRBP
2018
2017
2018
2017
3.95 %
N/A
N/A
3.30 %
N/A
N/A
3.45 %
N/A
N/A
2.75 %
N/A
N/A
SERP I & SERP II
PRBP
2018
2017
2018
2017
$
4,983
—
160
—
(180 )
—
(276 )
4,687
$
$
—
—
—
—
278
—
(278 )
—
(4,687 ) $
$
4,786 $
—
176
—
282
—
(261 )
4,983 $
— $
—
—
—
261
—
(261 )
— $
(4,983 ) $
$
353
—
9
44
(61 )
—
(104 )
241
$
$
—
—
—
—
60
44
(104 )
—
(241 ) $
$
418
—
11
44
(9 )
—
(111 )
353
—
—
—
—
67
44
(111 )
—
(353 )
For the Year Ended December 31,
SERP I & SERP II
PRBP
2018
2017
2018
2017
(3,174 ) $
(1,513 )
—
—
(4,687 ) $
(3,221 ) $
(1,762 )
—
—
(4,983 ) $
(129 ) $
(112 )
—
—
(241 ) $
(149 )
(204 )
—
—
(353 )
Discount rate
Rate of increase for future compensation
Expected long-term rate of return on plan assets
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 December 31
Funded status at year end (plan assets less benefit obligations)
Amounts included in the Consolidated Balance Sheet as Other liabilities and
accumulated other comprehensive income including the following:
Accrued liability
Net actuarial loss
Prior service cost
Unrecognized net initial obligation
Net included in Other liabilities in the Consolidated Balance Sheets
$
$
$
$
$
$
$
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D. The following tables provide the components of net periodic pension costs for the periods indicated:
SERP I and SERP II Periodic Pension Cost
(dollars in thousands)
For the Year Ended December 31,
2017
2016
2018
Service cost
Interest cost
Amortization of prior service cost
Recognition of net actuarial loss
Net periodic pension cost
PRBP Net Periodic Pension Cost
(dollars in thousands)
Service cost
Interest cost
Amortization of prior service cost
Recognition of net actuarial loss
Net periodic pension cost
Discount Rate Used in the Calculation of Periodic Pension Costs
SERP I and SERP II
PRBP
E. Plan Assets:
$
$
$
$
—
160
—
70
230
$
$
—
176
—
59
235
$
$
For the Year Ended December 31,
2017
2016
2018
—
9
—
30
39
$
$
—
11
—
36
47
$
$
—
184
—
57
241
—
17
—
41
58
For the Year Ended December 31,
2017
2016
2018
3.30 %
2.75 %
3.75 %
2.80 %
3.90 %
3.90 %
The PRBP, SERP I and SERP II are unfunded plans and, as such, have no related plan assets.
F. Cash Flows
The following benefit payments, which reflect expected future service, are expected to be paid over the next ten years:
(dollars in thousands)
Fiscal year ending
2019
2020
2021
2022
2023
2024-2028
SERP I & SERP II
PRBP
$
$
$
$
$
$
286 $
286 $
283 $
280 $
355 $
1,711 $
49
42
36
31
26
71
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 2019 expected contribution for the SERP I and SERP II is $286 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, 2018 that will result
in an increase in the Corporation’s future pension expense because such losses at each measurement date
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exceed 10% of the greater of the projected benefit obligation or the market-related value of the plan assets. In accordance with GAAP, net
unrecognized gains or losses that exceed that threshold are required to be amortized over the expected service period of active employees, and are
included as a component of net pension cost. Amortization of these net actuarial losses has the effect of increasing the Corporation’s pension
costs as shown on the table in section D of this footnote.
Note 16 – 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
RBPI Merger Fair Values
Total deferred tax asset
Deferred tax liabilities:
Intangibles and other amortizing fair value adjustments
Originated MSRs
Deferred loan costs
Other reserves
Total deferred tax liability
Total net deferred tax asset
December 31,
2018
2017
$
$
$
$
$
4,476 $
2,919
9,728
1,100
1,656
1,377
2,580
23,836 $
5,290 $
1,105
1,105
535
8,035 $
15,801 $
3,948
3,169
11,113
1,116
761
1,361
4,726
26,194
970
1,253
—
72
2,295
23,899
Not included in the table above are deferred tax assets for state net operating losses and unrealized capital losses for partnership investments and
their respective valuation allowance of $705 thousand and $616 thousand. The state net operating losses of our leasing subsidiary as of
December 31, 2018 will expire between 2023 and 2036.
As a result of the RBPI Merger, deferred tax assets were initially increased by $33.1 million related to purchase accounting adjustments and net
deferred tax assets carried over from RBPI. During 2018, adjustments were made to the original purchase accounting adjustments that resulted in an
incremental deferred tax asset of $1.1 million.
B. The provision for income taxes consists of the following:
(dollars in thousands)
Current
Deferred
Total
December 31,
2018
2017
2016
$
$
4,326
9,839
14,165
$
$
13,812
20,418
34,230
$
$
16,492
1,676
18,168
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C. Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as follows:
(dollars in thousands)
Computed tax expense at
statutory federal rate
Tax-exempt income
State tax (net of federal tax benefit)
Non-deductible merger expense
Excess tax benefit – stock based
compensation
Adjustment to net deferred tax assets for
enacted changes in tax laws, rates and
return to provision adjustments
Other, net
Total income tax expense
$
$
D. Tax Law Changes – Impact to Tax Expense
2018
Tax
Rate
2017
Tax
Rate
2016
Tax
Rate
16,371
(470 )
874
—
21.0 % $
(0.6 )%
1.1 %
— %
20,036
(600 )
303
455
35.0 % $
(1.0 )%
0.5 %
0.8 %
18,972
(758 )
425
—
35.0 %
(1.4 )%
0.8 %
— %
(848 )
(1.1 )%
(1,049 )
(1.8 )%
(565 )
(1.0 )%
(1,895 )
133
14,165
(2.4 )%
0.2 %
18.2 % $
15,193
(108 )
34,230
26.5 %
(0.2 )%
59.8 % $
—
94
18,168
— %
0.1 %
33.5 %
With the enactment of the Tax Cuts and Jobs Act (“Tax Reform” or the “Tax Act”) on December 22, 2017, the federal corporate income tax rate was
reduced from 35% to 21% effective January 1, 2018. The Corporation's 2017 financial results included a charge of $15.2 million to income tax expense,
primarily resulting from re-measuring the Corporation's net deferred tax assets to reflect the recently enacted lower tax rate effective January 1, 2018.
During 2018, we recorded certain tax provision to tax return true-up adjustments associated with items that were finalized as part of our 2017 tax
return filing. We recorded a $2.5 million tax benefit in 2018, primarily for deferred tax temporary difference items that were claimed on the 2017 tax
return at a 35% federal tax rate that were recorded at December 31, 2017 as anticipating to be deducted at a 21% federal tax rate. Also during 2018, as
a result of additional purchase accounting adjustments during the year, $611 thousand of such purchase accounting adjustments were charged to
income tax expense as a result of reducing their original 35% tax benefit to the new 21% tax rate in effect for 2018. There are no remaining provisional
items as of December 31, 2018.
Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense
related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in
continuing operations, but also to items initially recognized in other comprehensive income. The income tax expense recognized as a result of Tax
Reform is as follows:
(dollars in thousands)
Deferred taxes related to items recognized in continuing operations
Deferred taxes on net actuarial loss on defined benefit post-retirement benefit plans
Deferred taxes on net unrealized losses on available for sale investment securities
Total income tax (benefit) / expense related to Tax Reform
Year Ended
December 31,
2018
2017
$
$
(1,895) $
—
—
(1,895) $
14,411
275
507
15,193
Because ASC 740 requires the effect of income tax law changes on deferred taxes to be recognized as a component of income tax expense related to
continuing operations rather than backward tracing the adjustment through the accumulated other comprehensive income component of
shareholders' equity, the net adjustment to deferred taxes for the year ending December 31, 2017 detailed above included a net expense totaling $782
thousand related to items recognized in other comprehensive income.
E. Other Income Tax Information
In accordance with the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes”, management recognizes the financial statement
benefit of a tax position only after determining that the Corporation would more likely than not sustain the position following an examination. For tax
positions meeting the more-likely-than-not threshold, the amount recognized in the
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financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax
authority. Management applied these criteria to tax positions for which the statute of limitations remained open.
There were no reserves for uncertain tax positions recorded during the years ended December 31, 2018, 2017 or 2016.
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 2015.
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 2018.
As of December 31, 2018, the Corporation has net operating loss (“NOL”) carry-forwards for federal income tax purposes of $46.3 million, all of
which relate to the RBPI Merger which are subject to an annual usage limitation of approximately $2.7 million. Management estimates it will be able
to utilize an additional $5.0 million per year of the NOLs acquired in the RBPI Merger for a five-year period subsequent to December 15, 2017 due to
the existence of net unrealized built-in gains (“NUBIG”) under IRC Section 382, these NOLs will begin to expire in 2030. In addition, the Corporation
has alternative minimum tax (“AMT”) credits of $1.1 million, approximately $532 thousand of which are related to the RBPI Merger. The credit
amounts do not expire. The amount of AMT credits that can be used per year are limited under IRC section 383. The Corporation has determined
that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset related to
these amounts.
As a result of the July 1, 2010 merger with FKF, the Corporation succeeded to $2.5 million of tax bad debt reserves that existed at FKF as of June 30,
2010. As of December 31, 2018, the Corporation has not recognized a deferred income tax liability with respect to these reserves. These reserves
could be recognized as taxable income and create a current and/or deferred tax liability at the income tax rates then in effect if one of the following
conditions occurs: (1) the Bank’s retained earnings represented by this reserve are used for distributions, in liquidation, or for any other purpose
other than to absorb losses from bad debts; (2) the Bank fails to qualify as a bank, as provided by the Internal Revenue Code; or (3) there is a
change in federal tax law.
Note 17 – Accumulated Other Comprehensive Loss
The following table details the components of accumulated other comprehensive (loss) income for the years ended December 31, 2018, 2017 and
2016:
(dollars in thousands)
Balance, December 31, 2015
Other comprehensive (loss) income
Balance, December 31, 2016
Other comprehensive (loss) income
Reclassification due to the adoption of ASU No. 2018-02
Balance, December 31, 2017
Other comprehensive (loss) income
Balance, December 31, 2018
Net Change in
Unrealized Gains on
Available-for-Sale
Investment Securities
$
Net Change in
Unfunded Pension
Liability
Accumulated Other
Comprehensive Loss
(1,186) $
8
(1,178)
(100)
(275)
(1,553)
269
(1,284) $
(412)
(1,997)
(2,409)
(1,223)
(782)
(4,414)
(3,099)
(7,513)
$
774
(2,005)
(1,231)
(1,123)
(507)
(2,861)
(3,368)
(6,229) $
$
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The following tables detail the amounts reclassified from each component of accumulated other comprehensive loss for the years ended
December 31, 2018, 2017 and 2016:
Description of Accumulated Other
Comprehensive Loss Component
Net unrealized gain on investment securities available for
sale:
Realization of gain (loss) on sale of investment securities
available for sale
Realization of gain on transfer of investment securities
available for sale to trading
Total
Income tax effect
Net of income tax
Amount Reclassified from
Accumulated Other Comprehensive
Loss
For the Year Ended
December 31,
2018
2017
2016
Affected Income Statement Category
$
$
$
7
$
101
$
(77)
417
424
89
335
$
$
—
101
35
66
$
$
—
(77)
(27)
(50)
Net gain (loss) on sale of investment
securities available for sale
Other operating income
Income tax expense
Net income
Unfunded pension liability:
Amortization of net loss included in net periodic pension
costs(1)
Income tax effect
100
21
79
Net income
Net of income tax
(1) Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 15, “Pension and
Postretirement Benefit Plans,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Other operating expenses
Income tax expense
98
34
64
95
33
62
$
$
$
$
$
$
Note 18 - Earnings per Common Share
The calculation of basic earnings per share and diluted earnings per share is presented below:
(dollars in thousands, except per share data)
2018
2017
2016
Year Ended December 31,
Numerator:
Net income available to common shareholders
Denominator for basic earnings per share – Weighted average shares
outstanding(1)
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
(1) Excludes restricted stock
$
$
$
63,792
$
23,016
$
36,036
20,234,792
155,375
17,150,125
248,798
20,390,167
3.15
3.13
$
$
17,398,923
1.34
1.32
$
$
16,859,623
168,499
17,028,122
2.14
2.12
19,422
27,159
—
All weighted average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of
stock dividends and splits. See Section Q, “Earnings per Common Share” of Note 1, “Summary of Significant Accounting Policies,” in the
accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion on the calculation of earnings
per share.
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Note 19 - Revenue from Contracts with Customers
All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following
table presents the Corporation’s noninterest income by revenue stream and reportable segment for the years ended December 31, 2018 and 2017 and
2016, respectively. Items outside the scope of ASC 606 are noted as such.
(dollars in thousands)
Banking
Management Consolidated Banking
Management Consolidated Banking
Management Consolidated
For the Year Ended December 31,
2018
Wealth
2017
Wealth
2016
Wealth
$
— $
—
4,848
42,326 $
6,808
—
$
42,326
6,808
4,848
— $
—
2,396
38,735 $
4,589
—
$
38,735
4,589
2,396
— $
—
—
36,690 $
3,722
—
—
—
—
—
—
2,989
2,608
2,259
3,283
2,106
2,441
7
295
101
(104)
—
—
—
—
—
2,608
2,791
2,106
2,441
1,939
3,048
101
(77)
(104)
(76)
—
—
—
—
—
—
186
49,320 $
1,621
11,546
75,982
939
5,124
$ 15,611 $
—
197
43,521 $
939
5,321
59,132
1,063
4,710
$ 13,398 $
—
158
40,570 $
1,063
4,868
53,968
36,690
3,722
—
2,791
1,939
3,048
(77)
(76)
Fees for wealth
management services
Insurance commissions
Capital markets revenue(1)
Service charges on deposit
accounts
Loan servicing and other
fees(1)
Net gain on sale of loans(1)
Net gain (loss) on sale of
investment securities
available for sale(1)
Net gain (loss) on sale of
OREO
Dividends on FHLB and
FRB stock(1)
Other operating income(2)
2,989
2,259
3,283
7
295
1,621
11,360
Total noninterest income $ 26,662 $
(1) Not within the scope of ASC 606.
(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling $2.2 million, $2.0 million and
$1.9 million for the years ended December 31, 2018 and 2017 and 2016, respectively, which are within the scope of ASC 606.
A description of the Corporation’s primary revenue streams accounted for under ASC 606 follows:
Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and
overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH
fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. Account
maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the
Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on
deposits are withdrawn from the customer’s account balance.
Wealth Management Fees: The Corporation earns wealth management fee revenue from a variety of sources including fees from trust
administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA
administration, estate settlement, tax service fees, shareholder service fees and brokerage.
Fees that are determined based on the market value of the assets held in their accounts are generally billed monthly, in arrears, based on the market
value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the
services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is
executed, i.e. the trade date.
Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.
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Insurance Commissions: The Corporation earns commissions from the sale of insurance policies, which are generally calculated as a percentage of
the policy premium, and contingent income, which is calculated based on the volume and performance of the policies held by each carrier.
Obligations for the sale of insurance policies are generally satisfied at the point in time which the policy is executed and are recognized at the point
in time in which the amounts are known and collection is reasonably assured. Performance metrics for contingent income are generally satisfied over
time, not exceeding one year, and are recognized at the point in time in which the amounts are known and collection is reasonably assured.
Visa Debit Card Income: The Corporation earns income fees from debit cardholder transactions conducted through the Visa payment network. Fees
from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction
processing services provided to the cardholder.
Gains/Losses on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer,
which generally occurs at the time of an executed deed.
Note 20 - 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 units or awards to employees and directors of the Corporation under several plans. The performance awards and restricted awards may be in
the form of stock awards or stock units. Stock awards and stock units differ in that for a stock award, shares of restricted stock are issued in the
name of the grantee, whereas a stock unit constitutes a promise to issue shares of stock upon vesting. The accounting for awards and units is
identical. The terms and conditions of awards under the plans are determined by the Corporation’s Management Development and Compensation
Committee.
Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options. On April 25, 2007, the
shareholders approved 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” under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants, and on April
30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “2010 LTIP”) to, among other
things, increase the number of shares available for award grants by 500,000 to 945,002.
In addition to the shareholder-approved plans mentioned in the preceding paragraph, 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.
The equity awards are authorized to be in the form of, among others, options to purchase the Corporation’s common stock, restricted stock units
(“RSUs”) and performance stock units (“PSUs”).
RSUs have a restriction based on the passage of time. The grant date fair value of the RSUs is based on the closing price on the date of the grant.
PSUs have a restriction based on the passage of time and also have a restriction based on a performance criteria. The performance criteria may be a
market-based criteria measured by 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 PSUs based on the Corporation’s TSR relative to the performance of a designated peer group or the
NASDAQ Community Bank Index is calculated using the Monte Carlo Simulation method. The performance criteria may also be based on a non-
market-based criteria such as return on average equity relative to that designated peer group. The grant date fair value of these PSUs is based on
the closing price of the Corporation’s stock on the date of the grant. PSU grants may have a vesting percent ranging from 0% to 150%.
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The following table summarizes the remaining shares authorized to be granted under the 2010 LTIP:
Shares
Authorized for
Grant
Balance, December 31, 2015
Grants of RSUs
Grants of PSUs
Expiration of unexercised options
Non-vesting PSUs(1)
Forfeitures of PSUs
Forfeitures of RSUs
Balance, December 31, 2016
Grants of RSUs
Grants of PSUs
Expiration of unexercised options
Non-vesting PSUs(1)
Forfeitures of PSUs
Forfeitures of RSUs
Balance, December 31, 2017
Grants of RSUs
Grants of PSUs
Expiration of unexercised options
Non-vesting PSUs(1)
Forfeitures of PSUs
Forfeitures of RSUs
Balance, December 31, 2018
(1) Non-vesting PSUs represent PSUs that did not meet their performance criteria, were cancelled and are available for future grant.
B. Fair Value of Options Granted
No stock options were granted or assumed during the years ended December 31, 2018, 2017 and 2016.
C. Other Stock Option Information
The following table provides information about options outstanding:
617,765
(33,142)
(45,346)
—
10,088
2,344
1,250
552,959
(40,137)
(41,323)
250
—
3,899
4,305
479,953
(38,806)
(40,722)
—
—
5,679
1,515
407,619
For the Year Ended December 31,
2018
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Shares
2017
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Shares
2016
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Options outstanding,
beginning of period
Expired
Exercised
Options outstanding,
end of period
Shares
115,246 $
— $
(64,645) $
20.73 $
— $
22.65 $
50,601 $
18.28 $
4.86
—
5.00
4.68
185,023 $
(250) $
(69,527) $
21.04 $
22.00 $
21.55 $
115,246 $
20.73 $
4.88
4.90
4.91
4.86
290,853 $
— $
(105,830) $
20.88 $
— $
20.61 $
185,023 $
21.04 $
4.85
—
7.32
4.88
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The following table provides information related to options as of December 31, 2018:
$
$
$
$
Range of Exercise
Prices
15.48
15.76
17.16
18.31
to
to
to
to
$
$
$
$
Total Outstanding and Exercisable
(1) Price of exercisable options
Options
Outstanding
and Exercisable
Remaining
Contractual
Life (in years)
Weighted
Average
Exercise
Price(1)
15.75
17.15
18.30
18.33
225
338
49,475
563
50,601
0.09 $
1.07 $
0.64 $
5.05 $
For the years ended December 31, 2018, 2017 and 2016 there are no unvested options.
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
Year Ended December 31,
2018
2017
2016
$
$
$
1,464
312
1,776
1,512
$
$
$
1,498
506
2,004
1,445
$
$
$
15.48
16.02
18.27
18.33
2,181
256
2,437
1,125
The following table provides information about options outstanding and exercisable options:
(dollars in thousands, except
share data and exercise price)
Number
Weighted average exercise price
Aggregate intrinsic value
Weighted average contractual
term
2018
As of December 31,
2017
Options
Outstanding
50,601
18.28 $
1,478 $
$
$
Exercisable
Options
50,601
18.28 $
1,478 $
Options
Outstanding
115,246
20.73 $
2,705 $
Exercisable
Options
115,246
20.73
2,705
$
$
2016
Options
Outstanding
185,023
21.03 $
3,908 $
Exercisable
Options
185,023
21.03
3,908
0.7 years
0.7 years
1.2 years
1.2 years
2.0 years
2.0 years
As of December 31, 2018, all compensation expense related to stock options has been recognized.
D. RSUs and PSUs
The Corporation has granted RSUs and PSUs under the 2007 LTIP and 2010 LTIP and in accordance with Rule 5635(c)(4) of the Nasdaq listing
standards.
RSUs
Compensation expense for RSUs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a
straight-line basis over the vesting period.
For the year ended December 31, 2018, the Corporation recognized $1.2 million of expense related to the Corporation’s RSUs. As of December 31,
2018, there was $2.4 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of 2.6
years.
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The following table details the RSUs for the years ended December 31, 2018, 2017 and 2016:
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Number of
Shares
75,707 $
38,806 $
(36,252) $
(1,515) $
76,746 $
Weighted
Average
Grant Date
Fair Value
35.80
42.23
34.38
36.52
39.71
Weighted
Average
Grant Date
Fair Value
Number of
Shares
58,862 $
40,137 $
(18,987) $
(4,305) $
75,707 $
29.57
41.23
29.40
29.54
35.80
Number of
Shares
42,802 $
33,142 $
(15,832) $
(1,250) $
58,862 $
Weighted
Average
Grant Date
Fair Value
28.58
29.67
27.14
29.12
29.57
Beginning balance
Granted
Vested
Forfeited
Ending balance
PSUs
Compensation expense for PSUs is measured based on their grant date fair value as calculated using the Monte Carlo Simulation and is recognized
on a straight-line basis over the vesting period. The grant date fair value of each grant was determined independently using the Monte Carlo
Simulation. Assumptions used in the Monte Carlo Simulation for the grant of 20,971 PSUs, whose performance is based on TSR, in August 2018,
included expected volatility of 20.47% and a risk-free rate of interest of 2.72%.
The Corporation recognized $1.5 million of expense related to the PSUs for the year ended December 31, 2018. As of December 31, 2018, there was
$3.0 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 2.0 years.
The following table details the PSUs for the years ended December 31, 2018, 2017 and 2016:
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Beginning balance
Granted
Vested
Non-vesting(1)
Forfeited
Number of Shares
Number of Shares
Number of Shares
Weighted
Average
Grant Date
Fair Value
24.76
44.56
16.40
—
28.79
36.82
168,453 $
40,722 $
(81,840) $
— $
(5,679) $
121,656 $
Weighted
Average
Grant Date
Fair Value
18.77
37.86
15.05
—
21.45
24.76
192,844 $
41,323 $
(61,815) $
— $
(3,899) $
168,453 $
Weighted
Average
Grant Date
Fair Value
15.07
28.34
13.38
13.38
15.37
18.77
216,820 $
45,346 $
(56,890) $
(10,088) $
(2,344) $
192,844 $
Ending balance
(1) Non-vesting PSUs represent PSUs that did not meet their performance criteria, were cancelled and are available for future grant. The
associated expense, however, was incurred over the vesting period.
Note 21 - 401(K) Plan and Other Defined Contribution Plans
The Corporation has a qualified defined contribution plan (the “401(K) Plan”) for all eligible employees, under which the Corporation matches
employee contributions up to a maximum of 3.0% of the employee’s base salary. The Corporation recognized expense for matching contributions to
the 401(K) Plan of $1.4 million, $1.2 million, and $1.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.
In addition to the matching contribution above, the Corporation provides a discretionary, non-matching employer contribution to the 401(K) Plan.
The Corporation recognized expense for the non-matching discretionary contributions of $1.5 million, $489 thousand, and $126 thousand for the
years ended December 31, 2018, 2017 and 2016, respectively.
On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the “EDCP”), a non-qualified
defined-contribution plan which was restricted to certain senior officers of the Corporation. The intended purpose of the EDCP is to provide
deferred compensation to a select group of employees. The Corporation recognized
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expense for contributions to the EDCP of $441 thousand, $238 thousand, and $272 thousand for the years ended December 31, 2018, 2017 and 2016,
respectively.
Note 22 - Fair Value Measurement
FASB ASC 820, “Fair Value Measurement” establishes a fair value hierarchy based on the nature of data inputs for fair value determinations, under
which the Corporation is required to value each asset using assumptions that market participants would utilize to value that asset. When the
Corporation uses its own assumptions, it is required to disclose additional information about the assumptions used and the effect of the
measurement on earnings or the net change in assets for the period.
The value of the Corporation’s available for sale investment securities, which include obligations of the U.S. government and its agencies,
mortgage-backed securities issued by U.S. government- and U.S. government sponsored agencies, obligations of state and political subdivisions,
corporate bonds, other debt securities, as well as bond mutual funds are determined by the Corporation, including the use of an independent third
party. Management performs tests to assess the validity of these third-party values. The third party’s evaluations are based on market data. They
utilize pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily
basis, their pricing models apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the
evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers
recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities,
additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market
conditions.
U.S. Government agencies are evaluated and priced using multi-dimensional relational models and option adjusted spreads. State and municipal
securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage-backed securities are evaluated
using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other
available-for-sale investments are evaluated using a broker-quote based application, including quotes from issuers.
The value of the investment portfolio is determined using three broad levels of inputs:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and
model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant value drivers are unobservable.
These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following tables summarize the assets
at December 31, 2018 and 2017 that are recognized on the Corporation’s Consolidated Balance Sheets 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, 2018:
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Table of Contents
(dollars in thousands)
Investment securities available for sale:
U.S. Treasury securities
Obligations of U.S. government & agencies
Obligations of state & political subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Other investment securities
Total investment securities available for sale
Investment securities trading:
Mutual funds
Derivatives:
Interest rate swaps
RPAs purchased
Total derivatives
Total assets measured on a recurring basis at fair value
Total
Level 1
Level 2
Level 3
$
$
$
$
$
200,013
195,855
11,332
289,890
39,252
1,100
737,442
$
200,013 $
—
—
—
—
—
$
200,013 $
—
195,855
11,332
289,890
39,252
1,100
537,429
$
$
7,502
$
7,502 $
—
$
12,550
71
12,621
$
—
—
— $
12,550
71
12,621
$
757,565
$
207,515 $
550,050
$
—
—
—
—
—
—
—
—
—
—
—
—
Fair value of assets measured on a non-recurring basis as of December 31, 2018:
(dollars in thousands)
Mortgage servicing rights
Impaired loans and leases
OREO
Total assets measured at fair value on a non-recurring basis
Fair value of assets measured on a recurring basis as of December 31, 2017:
(dollars in thousands)
Investment securities available for sale:
U.S. Treasury securities
Obligations of U.S. government & agencies
Obligations of state & political subdivisions
Mortgage-backed securities
Collateralized mortgage obligations
Mutual funds
Other investment securities
Total investment securities available for sale
Investment securities trading:
Mutual funds
Derivatives:
Interest rate swaps
RPAs purchased
Total derivatives
Total recurring fair value measurements
Total
Level 1
Level 2
Level 3
6,277
22,112
417
28,806
$
$
— $
—
—
— $
—
—
—
—
$
$
6,277
22,112
417
28,806
Total
Level 1
Level 2
Level 3
200,088
151,044
21,310
274,990
36,662
3,509
1,599
689,202
$
200,088 $
—
—
—
—
3,509
—
$
203,597 $
—
151,044
21,310
274,990
36,662
—
1,599
485,605
$
$
4,610
$
4,610 $
—
$
1,895
21
1,916
$
—
—
— $
1,895
21
1,916
$
695,728
$
208,207 $
487,521
$
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
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Fair value of assets measured on a non-recurring basis as of December 31, 2017:
(dollars in thousands)
Mortgage servicing rights
Impaired loans and leases
OREO
Total assets measured at fair value on a non-recurring basis
Total
Level 1
Level 2
Level 3
$
$
6,397
13,954
304
20,655
$
$
— $
—
—
— $
—
—
—
—
$
$
6,397
13,954
304
20,655
For the year ended December 31, 2018, a net increase of $204 thousand in the Allowance was recorded, and for the year ended December 31, 2017, a
net increase of $175 thousand in the Allowance was recorded as a result of adjusting the carrying value and estimated fair value of the impaired
loans in the above tables. As it relates to the fair values of assets measured on a recurring basis, there have been no transfers between levels during
the year ended December 31, 2018.
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Note 23 – Disclosure about Fair Value of Financial Instruments
FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the
fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The
estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies,
are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018, and are applied to this disclosure on a prospective basis.
Estimated fair value of assets and liabilities carried at cost as of December 31, 2017 were based on an entry price notion. In cases where quoted
market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the
instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.
The carrying amount and fair value of the Corporation’s financial instruments are as follows:
(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
Interest rate swaps
Risk participation agreements purchased
Other assets
Total financial assets
Financial liabilities:
Deposits
Short-term borrowings
Long-term FHLB advances
Subordinated notes
Junior subordinated debentures
Interest rate swaps
Risk participation agreements sold
Other liabilities
Total financial liabilities
As of December 31,
2018
2017
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
48,456
737,442
7,502
8,684
1,749
3,407,728
5,047
12,550
71
43,641
4,272,870
3,599,087
252,367
55,374
98,526
21,580
12,549
2
60,847
4,100,332
$
$
$
$
48,456
737,442
7,502
8,438
1,749
3,414,921
6,277
12,550
71
43,641
4,281,047
3,594,123
252,367
54,803
100,120
31,176
12,549
2
60,847
4,105,987
$
$
$
$
60,024
689,202
4,610
7,932
3,794
3,268,333
5,861
1,895
21
46,799
4,088,471
3,373,798
237,865
139,140
98,416
21,416
1,895
3
49,071
3,921,604
$
$
$
$
60,024
689,202
4,610
7,851
3,794
3,293,802
6,397
1,895
21
46,799
4,114,395
3,368,276
237,865
138,685
95,044
19,366
1,895
3
49,071
3,910,205
Fair Value
Hierarchy
Level(1)
Level 1
See Note 22
See Note 22
Level 2
Level 2
Level 3
Level 3
Level 2
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
$
$
$
$
(1) See Note 22, “Fair Value Measurement,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on
Form 10-K for a description of hierarchy levels.
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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, 2018 were $867.2
million. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Corporation upon extension of credit, is based on a credit evaluation of the counterparty. Collateral varies but may include accounts
receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credits are issued
to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in extending loan
facilities to customers. The collateral varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment,
and residential real estate for those commitments for which collateral is deemed necessary. The Corporation’s obligation under standby letters of
credit as of December 31, 2018 was $21.2 million.
Contingencies
Legal Matters
In the ordinary course of its operations, the Corporation and its subsidiaries are parties to various claims, litigation, investigations, and legal and
administrative cases and proceedings. Such pending or threatened claims, litigation, investigations, legal and administrative cases and proceedings
typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted
in many of these types of legal actions. Based on the information currently available, the Corporation believes it has meritorious defenses to the
claims asserted against it in its currently outstanding legal proceedings and with respect to such legal proceedings, intends to continue to defend
itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its
shareholders.
On a regular basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest information
available. For those matters where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, a
liability may be recorded in the consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant
developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount or range of the loss is not estimable, legal
reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of
counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal
proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash
flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be
material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.
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Indemnifications
In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan-sale contract provisions. These
provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These
indemnifications may include the repurchase of loans by the Corporation and are considered customary provisions in the secondary market for
conforming mortgage loan sales. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such
repurchases for the year ended December 31, 2018.
Concentrations of Credit Risk
The Corporation has a material portion of its loans in real estate-related loans. A predominant percentage of the Corporation’s real estate exposure,
both commercial and residential, is in the Corporation’s primary trade area, which includes portions of Delaware, Chester, Montgomery and
Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and attempts to mitigate this risk to the extent
possible in many ways, including the underwriting and assessment of borrower’s capacity to repay. See Note 5, “Loans and Leases,” in the
accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.
Note 25 – Related Party Transactions
In the ordinary course of business, the Bank granted loans to principal officers, directors and their affiliates. The outstanding balances of loans,
including undrawn commitments to lend, to such related parties at December 31, 2018 and 2017 were $9.3 million and $8.1 million, respectively.
Related party deposits amounted to $6.7 million and $4.8 million at December 31, 2018 and 2017, respectively.
Note 26 - 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. Accordingly, the dividend payable by the Bank to the Corporation beginning on January 1, 2019 is
limited to net income not yet earned in 2019 plus the Bank’s total retained net income for the combined two years ended December 31, 2017 and 2018
of $55.1 million. The Bank issued $26.0 million of dividends to the Corporation during the year ended December 31, 2018, and did not issue any
dividends to the Corporation during the year ended December 31, 2017. 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 27 –
“Regulatory Capital Requirements.”
Note 27 - 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 consolidated 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 section titled Capital Adequacy within Item 1 - Business -
Supervision and Regulation beginning at page 5 in this Form 10-K.
B. S-3 Shelf Registration Statement and Offerings Thereunder
In May 2018, the Corporation filed a shelf registration statement on Form S-3, SEC File No. 333-224849 (the “Shelf Registration Statement”). The
Shelf Registration Statement allows the Corporation to raise additional capital from time to time through offers and sales of registered securities
consisting of common stock, debt securities, warrants, purchase contracts, rights and units or
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units consisting of any combination of the foregoing securities. The Corporation may sell these securities using the prospectus in the Shelf
Registration Statement, together with applicable prospectus supplements, from time to time, in one or more offerings.
In addition, 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 year ended December 31, 2018, the Corporation did not issue any shares through the Plan, nor were any RFWs approved. The Plan
administrator conducted dividend reinvestments for Plan participants through open market purchases. No other sales of equity securities were
executed under the Shelf Registration Statement during the year ended December 31, 2018.
C. Shares Issued in Mergers and Acquisitions
In connection with the RBPI Merger, the Corporation issued 3,101,316 common shares, valued at $136.8 million, to former shareholders of RBPI.
These shares were registered on an S-4 registration statement filed by the Corporation in April 2017 (SEC File No. 333-216995).
D. Share Repurchases
For the years ended December 31, 2018 and 2017, the Corporation repurchased 149,284 and 0 shares, respectively, of Corporation stock through its
announced repurchase program. 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. As of December 31, 2018 and 2017, 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, 2018 and 2017.
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The Corporation’s and the Bank’s capital amounts and ratios as of December 31, 2018 and 2017 are presented in the following table:
(dollars in thousands)
December 31, 2018
Total capital to risk weighted assets:
Corporation
Bank
Tier I capital to risk weighted assets:
Corporation
Bank
Common equity Tier I risk weighted assets:
Corporation
Bank
Tier I leverage ratio (Tier I capital to total quarterly average assets):
Corporation
Bank
December 31, 2017
Total capital to risk weighted assets:
Corporation
Bank
Tier I capital to risk weighted assets:
Corporation
Bank
Common equity Tier I to risk weighted assets:
Corporation
Bank
Tier I leverage ratio (Tier I capital to total quarterly average assets):
Corporation
Bank
127
Actual
Minimum
to be Well
Capitalized
Amount
Ratio
Amount
Ratio
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
500,375
419,136
382,151
399,438
361,256
399,438
382,151
399,438
463.637
387,067
347.187
369,033
328.676
369,033
347.187
369,033
14.30 % $
11.99 % $
349,918
349,692
10.00 %
10.00 %
10.92 % $
11.42 % $
279,934
279,754
10.32 % $
11.42 % $
227,446
227,300
9.06 % $
9.48 % $
210,830
210,615
8.00 %
8.00 %
6.50 %
6.50 %
5.00 %
5.00 %
13.92 % $
11.65 % $
333,068
332,388
10.00 %
10.00 %
10.42 % $
11.10 % $
266,454
265,910
9.87 % $
11.10 % $
216,494
216,052
10.10 % $
10.75 % $
171,804
171,609
8.00 %
8.00 %
6.50 %
6.50 %
5.00 %
5.00 %
Table of Contents
Note 28 - Selected Quarterly Financial Data (Unaudited)
(dollars in thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income
Net (loss) income attributable to noncontrolling interest
Net income attributable to Bryn Mawr Bank Corporation
Basic earnings per common share(1)
Diluted earnings per common share(1)
Dividend paid or accrued
$
$
$
$
$
1st Quarter
43,534
6,095
37,439
1,030
19,536
36,030
19,915
4,630
15,285
(1 )
15,286
0.76
0.75
0.22
$
$
$
$
2nd Quarter
$
2018
3rd Quarter
45,233
8,504
36,729
664
18,274
33,592
20,747
4,066
16,681
44,754 $
7,438
37,316
3,137
20,075
35,836
18,418
3,723
14,695
7
14,688 $
0.73 $
0.72 $
0.22 $
2017
16,682
0.82
0.82
0.25
(1 )
4th Quarter
47,534
$
9,547
37,987
2,362
18,097
34,845
18,877
1,746
17,131
(5 )
17,136
0.85
0.84
0.25
$
$
$
$
(dollars in thousands, except per share data)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income (loss)
Net (loss) income attributable to noncontrolling interest
Net income (loss) attributable to Bryn Mawr Bank Corporation
Basic earnings (loss) per common share(1)
Diluted earnings (loss) per common share(1)
Dividend paid or accrued
$
$
$
$
$
30,326
2,923
27,403
291
13,227
26,660
13,679
4,635
9,044
—
9,044
0.53
0.53
0.21
$
$
$
$
$
31,237 $
3,272
27,965
(83 )
14,785
28,495
14,338
4,905
9,433
—
9,433 $
0.56 $
0.55 $
0.21 $
33,198
3,760
29,438
1,333
15,584
28,184
15,505
4,766
10,739
—
10,739
0.63
0.62
0.22
$
$
$
$
$
34,798
4,477
30,321
1,077
15,536
31,056
13,724
19,924
(6,200 )
—
(6,200 )
(0.35 )
(0.35 )
0.22
(1) Earnings per share is computed independently for each period shown. As a result, the sum of the quarters may not equal the total earnings
per share for the year.
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Table of Contents
Note 29 - 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:
Subordinated notes
Junior subordinated debentures
Other liabilities
Total liabilities
Common stock, par value $1; authorized 100,000,000 shares; issued 24,545,348 and 24,360,049
shares as of December 31, 2018 and December 31, 2017, respectively, and outstanding of
20,163,816 and 20,161,395 as of December 31, 2018 and December 31, 2017, respectively
Paid-in capital in excess of par value
Less: Common stock in treasury at cost - 4,381,532 and 4,198,654 shares as of December 31, 2018
and December 31, 2017, respectively
Accumulated other comprehensive loss, net of deferred income taxes benefit
December 31,
2018
2017
$
$
78,143 $
418
606,023
2,091
245
1,060
687,980
98,526
21,580
2,485
122,591
24,545
374,010
(75,883 )
(7,513 )
250,230
565,389
687,980 $
68,535
458
580,230
2,189
245
1,135
652,792
98,416
21,416
4,158
123,990
24,360
371,486
(68,179 )
(4,414 )
205,549
528,802
652,792
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
B. Condensed Statements of Income
(dollars in thousands)
Dividends from subsidiaries
Net 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
Net income
Year Ended December 31,
2018
2017
2016
$
$
$
30,900
2,615
33,515
3,527
29,988
32,779
62,767
(1,025)
$
63,792
$
950
2,761
3,711
2,782
929
21,053
21,982
(1,034)
$
23,016
17,718
2,714
20,432
2,443
17,989
17,600
35,589
(447)
36,036
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Table of Contents
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
Net change in trading securities
Acquisitions, net of cash acquired
Net cash provided by (used in) investing activities
Financing activities:
Dividends paid
Proceeds from issuance of subordinated notes
Net proceeds from sale of (purchase of) treasury stock for deferred compensation
plans
Net purchase of treasury stock through publicly announced plans
Cash payments to taxing authorities on employees' behalf from shares withheld
from stock-based compensation
Proceeds from exercise of stock options
Repurchase of treasury warrants
Net cash (used in) 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
Note 30 - Segment Information
$
Year Ended December 31,
2018
2017
2016
63,792
$
23,016
$
36,036
(32,779)
98
2,750
2,860
36,721
—
40
—
40
(19,289)
—
2
(5,936)
(1,639)
1,464
(1,755)
(27,153)
9,608
68,535
78,143
$
(21,053)
154
2,068
1,241
5,426
(15,300)
(58)
531
(14,827)
(14,799)
68,829
(115)
—
(1,140)
1,498
—
54,273
44,872
23,663
68,535
$
(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
FASB Codification 280 – “Segment Reporting” identifies operating segments as components of an enterprise which are evaluated regularly by the
Corporation’s chief operating decision maker, our Chief Executive Officer, in deciding how to allocate resources and assess performance. The
Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.
The Corporation’s Banking segment consists of commercial and retail banking. The Banking segment is evaluated as a single strategic unit which
generates revenues from a variety of products and services. The Banking segment generates interest income from its lending (including leases) and
investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for
funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains
on the sale in available for sale investment securities, gains on the sale of residential mortgage loans, service charges on deposit accounts, cash
sweep fees, overdraft fees, BOLI income and interchange revenue associated with its Visa Check Card offering. Also included in the Banking
segment are two subsidiaries of the Bank, KCMI Capital, Inc. and Bryn Mawr Equipment Financing, Inc., both of which provide specialized lending
solutions to our customers.
The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust administration, other related
fiduciary services, custody, investment management and advisory services, employee benefits and IRA administration, estate settlement, tax
services and brokerage. Bryn Mawr Trust of Delaware and Lau Associates are included in the Wealth Management segment of the Corporation
since they have similar economic characteristics, products and services to those of the Wealth Management Division of
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the Corporation. BMT Investment Advisers, formed in May 2017, which serves as investment adviser to BMT Investment Funds, a Delaware
statutory trust, is also reported under the Wealth Management segment.
In addition, with the October 1, 2014 acquisition of PCPB, followed by the April 1, 2015 acquisition of RJM and the May 2017 acquisition of
Hirshorn Boothby, both of which were merged into PCPB (now BMT Insurance Advisors), the Wealth Management Division assumed
responsibility for all insurance services of the Corporation.
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:
(dollars in thousands)
Banking
Wealth
Management Consolidated Banking
Wealth
Management Consolidated Banking
2018
2017
As of or for the Year Ended December 31,
2016
Wealth
Management Consolidated
Net interest income
$149,464 $
7 $
149,471
$115,124 $
3 $
115,127
$106,233 $
3 $
106,236
Provision for loan and
lease losses
Net interest income after
loan loss provision
7,193
142,271
—
7
7,193
2,618
142,278
112,506
—
3
2,618
4,326
112,509
101,907
—
3
4,326
101,910
Noninterest income:
Fees for wealth
management services
Insurance commissions
Capital markets revenue
Service charges on deposit
accounts
Loan servicing and other
fees
Net gain on sale of loans
Net gain on sale of
investment securities
available for sale
Net gain (loss) gain on sale
of OREO
Other operating income
Total noninterest income
Noninterest expenses:
Salaries & wages
Employee benefits
Occupancy and bank
premise
Amortization of intangible
assets
Professional fees
Other operating expenses
Total noninterest
expenses
Segment profit
Intersegment (revenues)
expenses(1)
Pre-tax segment profit
after eliminations
% of segment pre-tax
profit after eliminations
Segment assets (dollars in
millions)
—
—
4,848
2,989
2,259
3,283
7
295
12,981
26,662
46,936
9,046
42,326
6,808
—
—
—
—
—
—
186
49,320
19,735
3,872
42,326
6,808
4,848
2,989
2,259
3,283
—
—
2,396
2,608
2,106
2,441
7
101
295
13,167
75,982
(104)
6,063
15,611
66,671
12,918
36,559
6,350
9,588
2,011
11,599
8,208
1,555
3,747
35,928
106,800
62,133
2,101
456
5,328
33,503
15,824
3,656
4,203
41,256
140,303
77,957
783
2,998
30,605
85,503
42,614
38,735
4,589
—
—
—
—
—
—
197
43,521
16,692
3,820
1,698
1,951
270
4,461
28,892
14,632
38,735
4,589
2,396
2,608
2,106
2,441
101
(104)
6,260
59,132
—
—
—
2,791
1,939
3,048
(77)
(76)
5,773
13,398
53,251
10,170
32,321
5,958
9,906
8,005
2,734
3,268
35,066
114,395
57,246
872
3,516
24,411
75,083
40,222
36,690
3,722
—
—
—
—
—
—
158
40,570
15,090
3,291
1,606
2,626
143
3,835
36,690
3,722
—
2,791
1,939
3,048
(77)
(76)
5,931
53,968
47,411
9,249
9,611
3,498
3,659
28,246
26,591
13,982
101,674
54,204
(715)
715
—
(448)
448
—
(396)
396
—
$ 61,418 $
16,539 $
77,957
$ 42,166 $
15,080 $
57,246
$ 39,826 $
14,378 $
54,204
78.8%
21.2%
100.0%
73.7%
26.3%
100.0%
73.5%
26.5%
100.0%
$ 4,601.7 $
50.8 $
4,652.5
$ 4,398.5 $
51.2 $
4,449.7
$ 3,377.1 $
44.4 $
3,421.5
(1) Inter-segment revenues consist of rental payments, interest on deposits and management fees.
131
Table of Contents
Wealth Management Segment Information
(dollars in millions)
Assets under management, administration, supervision and brokerage
December 31,
2018
December 31,
2017
$
13,429.5
$
12,968.7
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, 2018
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, 2018 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 2018 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, 2018, 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, 2018, in relation to the criteria for effective control
over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013). Based on this assessment, Management concludes that, as of December 31, 2018, 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 60, and is incorporated by reference herein.
ITEM 9B. OTHER INFORMATION
On February 27, 2019, the Bank determined to transition Alison Eichert from the role of Chief Operating Officer to Chief Administrative
Officer, such that Ms. Eichert is no longer deemed the principal operating officer of the Bank. Ms. Eichert remains an Executive Vice President of the
Bank and will continue to serve on the executive management team.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required for Item 10 is incorporated by reference to the sections titled “Our Board of Directors and Board Committees,”
“Information About our Directors,” “Information About our Executive Officers,” “Corporate Governance,” “Audit Committee Report” and “Section
16(a) Beneficial Ownership Reporting Compliance” in the 2019 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,” “Our Board of Directors and Board Committees,” and “Compensation Committee Report” and
“Compensation Committee Interlocks and Insider Participation” in the 2019 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 2019 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 2019 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
2019 Proxy Statement.
132
Table of Contents
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 Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
Item 15(a) (3) and (b) — Exhibits
Exhibit No.
Description and References
Page
60
62
63
64
65
67
69
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
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
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
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
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
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
Amendment to Stock Purchase Agreement, dated as of May 15, 2012, by and among Bryn Mawr Bank Corporation, Davidson
Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J. Costigan, William S. Covert,
James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson, Boston Private Financial Holdings, Inc., and
Alvin A. Clay III, incorporated by reference to Exhibit 2.1 of the Corporation’s 8-K filed with the SEC on May 18, 2012
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
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
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
133
Table of Contents
Exhibit No.
Description and References
2.11
2.12
2.13
2.14
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Stock Purchase Agreement, dated as of August 21, 2014, by and among The Bryn Mawr Trust Company, Donald W. Parker,
Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form
10-Q filed with the SEC on November 7, 2014
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
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
Amendment No. 1 to Agreement and Plan of Merger, dated December 14, 2017, by and between Bryn Mawr Bank
Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form
8-K filed with the SEC on December 18, 2017
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
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
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
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
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
Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National Association, as
trustee, incorporated by reference to the Corporation’s Form 8-K filed with the SEC on December 13, 2017
First Supplemental Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National
Association as trustee, incorporated by reference to the Corporation’s Form 8-K filed with the SEC on December 13, 2017
Form of 4.25% Fixed-to-Floating Rate Subordinated Note due December 15, 2027 (included as Exhibit A to the Indenture filed
as Exhibit 4.2), incorporated by reference to the Corporation’s Form 8-K filed with the SEC on December 13, 2017
Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as
Institutional Trustee, dated October 27, 2004, incorporated by reference to Exhibit 4.1 to RBPI’s Current Report on Form 8-K
(included as Exhibit A to Exhibit 10.1) filed with the SEC on November 1, 2004
Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as
Institutional Trustee, dated October 27, 2004, incorporated by reference to Exhibit 4.2 to RBPI’s Current Report on Form 8-K
(included as Exhibit A to Exhibit 10.2) filed with the SEC on November 1, 2004
Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27,
2004, incorporated by reference to Exhibit 10.1 to RBPI’s Current Report on Form 8-K filed with the Commission on November
1, 2004
Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27,
2004, incorporated by reference to Exhibit 10.2 to RBPI’s Current Report on Form 8-K filed with the Commission on November
1, 2004
Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee
Trustee, dated October 27, 2004, incorporated by reference to Exhibit 10.3 to RBPI’s Current Report on Form 8-K filed with
the Commission on November 1, 2004
134
Table of Contents
Exhibit No.
Description and References
4.13
4.14
10.1*
10.2**
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13**
10.14**
10.15**
10.16**
10.17**
10.18
Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee
Trustee, October 27, 2004, incorporated by reference to Exhibit 10.4 to RBPI’s Current Report on Form 8-K filed with the
Commission on November 1, 2004
Warrant to Purchase Class A Common Stock, issued February 20, 2009, by Royal Bancshares of Pennsylvania, Inc. to the
United States Department of the Treasury, incorporated by reference to Exhibit 4.1 to RBPI’s Current Report on Form 8-K
filed with the Commission on February 26, 2009
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
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
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
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
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
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
Standard Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), as of August 2018, filed
herewith
Standard Form of Restricted Stock Unit Agreement for Non-Employee Directors (Time/Performance Based), as of August
2018, filed herewith
Standard Form of Executive Change-of-Control Agreement, updated January 2019, filed herewith
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
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
Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), incorporated by reference to Exhibit
10.12 of the Corporation's Form 10-K filed with the SEC on March 2, 2018
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
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
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
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
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
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
135
Table of Contents
Exhibit No.
Description and References
10.19*
10.20**
10.21**
10.22**
10.23**
10.24
10.25**
10.26
10.27**
10.28**
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35**
10.36**
10.37**
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Form of Restricted Stock Unit Agreement for Directors (Time/Performance Based), incorporated by reference to Exhibit 10.34
of the Corporation's Form 10-K filed with the SEC on March 2, 2018
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
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
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
136
Table of Contents
Exhibit No.
Description and References
10.38
10.39*
10.40
10.41
10.42*
10.43*
10.44*
10.45*
10.46*
10.47
10.48
21.1
23.1
31.1
31.2
32.1
32.2
99.1
Third Amended and Restated Dividend Reinvestment and Stock Purchase Plan, effective May 25, 2018, incorporated by
reference to the Corporation’s Prospectus (Form 424B2) filed with the SEC on May 25, 2018
Employment Letter Agreement, dated December 15, 2017, by and between The Bryn Mawr Trust Company and F. Kevin
Tylus, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC on December 18, 2017
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
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
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
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
Employment Agreement dated as of April 1, 2015, between The Bryn Mawr Trust Company and Lori Goldman, incorporated
by reference to Exhibit 10.1 of the Corporation’s Form 10-Q filed with the SEC on November 3, 2017
Employment Letter Agreement, dated November 20, 2017, by and between Bryn Mawr Bank Corporation, The Bryn Mawr
Trust Company and Jennifer Dempsey Fox, incorporated by reference to Exhibit 10.45 of the Corporation’s Form 10-K filed
with the SEC on March 2, 2018
Form of Restricted Stock Unit Agreement for New Employee, incorporated by reference to Exhibit 10.46 of the Corporation’s
Form 10-K filed with the SEC on March 2, 2018
Form of Restricted Stock Unit Agreement for New Employee, filed herewith
Form of Restricted Stock Unit Agreement (Performance Based), filed herewith
List of Subsidiaries, filed herewith
Consent of KPMG LLP, filed herewith
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
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
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
Corporation’s Proxy Statement for 2018 Annual Meeting to be held on April 18, 2019, expected to be filed with the SEC on or
about March 8, 2019
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
137
Table of Contents
Exhibit No.
101.PRE XBRL
Description and References
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
Item 16 — None.
138
Table of Contents
SIGNATURES
Pursuant to the requirements of section 13 or 15d of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, there unto duly authorized.
Bryn Mawr Bank Corporation
By:
/s/ Michael W. Harrington
Michael W. Harrington
Chief Financial Officer
(Principal Financial Officer)
Date: February 28, 2019
139
Table of Contents
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
/s/ Michael W. Harrington
Michael W. Harrington
/s/ Michael T. LaPlante
Michael T. LaPlante
/s/ Diego F. Calderin
Diego F. Calderin
/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/ A. John May, III
A. John May, III
/s/ Lynn B. McKee
Lynn B. McKee
/s/ F. Kevin Tylus
F. Kevin Tylus
Chairman and Director
February 28, 2019
Chief Executive Officer
February 28, 2019
(Principal Executive Officer) and Director
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
February 28, 2019
February 28, 2019
Director
February 28, 2019
Director
February 28, 2019
Director
February 28, 2019
Director
February 28, 2019
Director
February 28, 2019
Director
February 28, 2019
Director
February 28, 2019
Director
February 28, 2019
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140
Section 2: EX-10.7 (EXHIBIT 10.7)
BRYN MAWR BANK CORPORATION
RESTRICTED STOCK UNIT AGREEMENT FOR EXECUTIVES
(SERVICE/PERFORMANCE-BASED)
SUBJECT TO THE AMENDED AND RESTATED 2010 LONG TERM INCENTIVE PLAN
Grantee: [ ]
Date of Grant: [ ]
Total Number of RSUs: [ ]
Number of time-based RSUs: [ ] (“Time-Based RSUs”)
Target number of performance-based RSUs: [ ] (“Performance-Based RSUs”)
Service Period: [ ] to [ ] (“Service Period”)
Performance Goal:
Certain conditions and goals as determined according to Exhibit A hereto
RESTRICTED STOCK UNIT AGREEMENT (“Agreement”), dated as of the Date of Grant set forth above by and between BRYN MAWR
BANK CORPORATION (the “Corporation”) and the Grantee named above (the “Grantee”).
1.
The Plan. This Agreement is subject to the terms and conditions of the Amended and Restated Bryn Mawr Bank Corporation
2010 Long Term Incentive Plan (the “Plan”) as approved by the Board of Directors of the Corporation on February 27, 2015 and by the
Corporation’s shareholders on April 30, 2015. Except as otherwise specified herein, all capitalized terms used in this Agreement shall have the
meanings given to them in the Plan.
2.
Grant of Restricted Stock Units.
a. Subject to the terms and conditions of the Plan and this Agreement, and the Grantee’s acceptance of same by execution of
this Agreement, the Corporation’s Management Development and Compensation Committee (“Compensation Committee”) hereby grants to the
Grantee the number of Restricted Stock Units set forth under “Total Number of RSUs” above (the “RSUs”).
b. Upon vesting of the RSUs and satisfaction of all of the other terms and conditions in this Agreement, the Corporation will
issue stock representing the shares underlying the vested RSUs (regardless of whether such RSUs are Time-Based RSUs or Performance-Based
RSUs) as soon as practicable following the Time Vesting Date (as defined in subsection 3(a) below), in the case of the vested Time-Based RSUs,
and the Performance Vesting Date (as defined in subsection 3(b) below), in the case of the Performance-Based RSUs.
3.
Terms and Conditions. The Grant is subject to the following terms and conditions:
a. Time-Based Requirements. The Time-Based RSUs will vest on August 9, 2021 (such date, the “Time Vesting Date”), provided
that Grantee has remained continually employed by the Corporation or any of its direct or indirect subsidiaries (individually and collectively, the
“Company Group”) from the Date of Grant through the Time Vesting Date.
b. Performance Goals. The Performance-Based RSUs are subject to the performance goals set forth in Exhibit A (the
“Performance Goals”) and shall vest, in whole or in part, upon the Performance Vesting Date only if the Performance Goals are achieved and the
Grantee has remained continuously employed by the Company Group through the end of the Service Period, or as otherwise provided herein. The
Compensation Committee shall determine within 75 days after the last day of the Service Period whether the Performance Goals have been achieved,
in whole or in part, in accordance with Exhibit A attached hereto. The value of any fractional shares will be paid to the Grantee through a separate
disbursement. No vesting of Performance-Based RSUs shall be deemed to have occurred unless and until the Compensation Committee certifies in
writing as to the portion of Performance Goals that have been achieved. The date on which the
Compensation Committee certifies as to the achievement of the Performance Goals and the vesting of the Performance-Based RSUs is referred to in
this Agreement as the “Performance Vesting Date”.
c. No Rights as a Shareholder. Grantee will have no rights or privileges of a shareholder (including but not limited to, no right to
vote the shares) with respect to shares underlying RSUs until such RSUs have vested and such shares have been issued.
d. Dividend-Equivalents. At the time of issuance of shares underlying vested RSUs pursuant to subsection 2(b) above, the
Corporation shall also pay to Grantee an amount equal to the aggregate amount of all dividends declared and paid by the Corporation based on
dividend record dates falling between the Date of Grant and the date of issuance in accordance with the number of shares issued. The dividend-
equivalents will be reported as W-2 wages and, as such, will be subject to statutory withholding requirements for federal, state and local taxes. The
computation set forth in this subparagraph is separate and distinct from the calculations and concepts set forth on Exhibit “A” hereto and the
calculations and concepts set forth on Exhibit “A” hereto have no applicability to the calculation of the amount of dividends to be paid by the
Corporation pursuant to this subparagraph.
e. Holding Period. All vested RSUs will be subject to a holding period (“Holding Period”) until the earliest of:
i. The two-year anniversary of such Time Vesting Date or Performance Vesting Date, as applicable;
ii. The date of the Grantee’s death or Disability (as defined in section 5 below); or
iii. The date of consummation of a Change in Control (as defined in section 7 below).
For purposes of clarification, once shares underlying vested RSUs have been issued and until the expiration of the applicable
Holding Period, Grantee shall have all of the rights and privileges of a shareholder with respect to such shares other than the right to sell, transfer,
gift, or otherwise divest himself or herself of such shares. Notwithstanding anything herein to the contrary, the Corporation may lift the Holding
Period with respect to any shares underlying vested RSUs where the sale of such shares is necessary to satisfy the payment of statutory federal,
state and local withholding taxes including, without limitation, social security and medicare taxes.
4.
Forfeiture.
a. Forfeiture. All Time-Based RSUs that have not vested at the Time Vesting Date in accordance with subsection 3(a), and all
Performance-Based RSUs that have not vested at the Performance Vesting Date in accordance with subsection 3(b) and Exhibit A attached hereto,
shall be forfeited in their entirety.
b. Forfeiture of Unvested RSUs and Payment to the Corporation for Issued Shares Resulting from Vested RSUs If Grantee
Engages in Certain Activities. The provisions of this subsection 4(b) will apply to all RSUs granted to Grantee under the Plan and to any shares
issued to the Grantee upon vesting of RSUs. If, at any time during the Service Period, or for a period of two (2) years after termination of Grantee’s
employment for any reason, Grantee engages in any activity inimical, contrary or harmful to the interests of the Company Group including, but not
limited to (A) conduct related to Grantee’s employment for which either criminal or civil penalties against Grantee may be brought, (B) violation of
the Company Group’s policies including, without limitation, the Corporation’s Insider Trading Policy, Code of Business Conduct and Ethics, Code
of Personal Conduct, Employee Handbook, or otherwise, (C) soliciting of any customer of the Company Group for business which would result in
such customer terminating their relationship with the Company Group; soliciting or inducing any individual who is an employee or director of the
Company Group to leave the Company Group or otherwise terminate their relationship with the Company Group, (D) disclosing or using any
confidential information or material concerning the Company Group, (E) breach of any agreement between the Grantee and the Company Group, or
(F) participating in a hostile takeover attempt, then (x) all RSUs that have not vested effective as of the date on which Grantee engages in such
activity, unless forfeited sooner by operation of another term or condition of this Agreement or the Plan, shall be forfeited in their entirety, and
(y) for any shares underlying vested RSUs which have been issued to Grantee, the Grantee shall pay to the Corporation the market value of the
shares on the date of issuance or the date Grantee engages in such activity, whichever is greater. The term “Confidential Information” as used in
this Agreement includes, but is not limited to, records, documents, programs, technical data, information technology, policies, files, lists, client non-
public personal information, pricing, costs, strategies, market data, statistics, business partners, customers, customer requirements,
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prospective customer contacts, knowledge of the Company Group’s clients, methods of operation, processes, trade secrets, methods of
determination of prices, fees, financial condition, profits, sales, net income, indebtedness, potential mergers or acquisitions, or the sale of Company
Group assets or subsidiaries, commercial contracts and relationships, employees, litigation (whether actual or threatened), information acquired in
connection with the Grantee’s employment with the Company Group, including without limitation, proprietary or confidential information of any
third party who may disclose such information to the Company Group or the Grantee in the course of Company Group business, and any other
information relating to the Company Group that has not been made available to the general public, as the same may exist from time to time. The
provisions of this Section 4 are in addition to, and in no way decrease, limit, or affect the applicability of or relief available to the Corporation under
Section 8.
c. Right of Setoff. By accepting this Agreement, Grantee consents to the deduction, to the extent permitted by law, from any
amounts that the Company Group owes Grantee from time to time (including amounts owed to Grantee as wages or other compensation, fringe
benefits, or paid time-off pay, as well as any other amounts owed to Grantee by the Company Group), the amounts Grantee owes the Corporation
under subsection 4(b) above. Whether or not the Corporation elects to make any setoff in whole or in part, if the Corporation does not recover by
means of setoff the full amount Grantee owes it, calculated as set forth above, Grantee agrees to immediately pay the unpaid balance to the
Corporation.
d. Compensation Committee Discretion. Grantee may be released from Grantee’s obligations under subsections 4(b) and 4(c)
only if the Compensation Committee, or its duly appointed agent, determines in its sole discretion that such action is in the best interest of the
Corporation.
5.
Death, Disability or Retirement. In the event the Grantee shall cease to be employed by the Company Group by reason of: (a)
Retirement; (b) a transfer of the Grantee in a spinoff; (c) death; or (d) total and permanent disability as determined by the Compensation Committee
(“Disability”), then the vesting requirements on a fraction of Grantee’s RSUs will be deemed to have been fulfilled. With respect to the Time-Based
RSUs, the vested portion shall be calculated as follows: the number of Time-Based RSUs granted multiplied by a fraction, the numerator of which is
the number of full calendar months that elapsed in the Service Period prior to the death, Disability, Retirement or transfer in a spinoff of the Grantee
and the denominator of which is the total number of full calendar months in the Service Period. With respect to the Performance-Based RSUs, the
vested portion shall be calculated as follows: the number of Performance-Based RSUs that would have vested in accordance with Section 3(b) had
Grantee remained employed through the Service Period, multiplied by a fraction, the numerator of which is the number of full calendar months that
elapsed in the Service Period prior to the death, Disability, Retirement or transfer in a spinoff of the Grantee and the denominator of which is the
total number of full calendar months in the Service Period. Shares underlying all Time-Based RSUs that vest in accordance with the terms of this
Section 5 shall be issued as soon as practicable following such vesting and Performance-Based RSUs that vest in accordance with the terms of this
Section 5 shall be issued as soon as practicable following the Performance Vesting Date. Any remaining RSUs which have not vested as provided
in this section 5 shall be forfeited.
6.
Termination. If the Grantee terminates the Grantee’s employment with the Company Group or if the Company Group terminates
the Grantee’s employment with or without Cause, other than as described in section 5 above, any RSUs that have not yet vested at the date of
termination shall automatically be forfeited.
7.
Change in Control. In the event of a Change in Control, Grantee’s outstanding RSUs will be deemed to have vested and any
shares underlying such RSUs not previously issued shall be issued within ten days after the Change in Control. For purposes of clarification, in
such a situation, all Time-Based RSUs will vest, and Performance-Based RSUs will vest at the target levels as described in Exhibit A hereto. A
“Change in Control” shall be deemed to have taken place if (i) any Person (as defined below) other than an entity in the Company Group or an
employee benefit plan of the Company Group (or any Person organized, appointed or established by the Company Group for or pursuant to the
terms of any such employee benefit plan), together with all affiliates and associates of such Person, becomes the beneficial owner in the aggregate
of 25% or more of the common stock of the Corporation then outstanding, or (ii) during any twenty-four month period, individuals who at the
beginning of such period constituted the Board of Directors of the Corporation or The Bryn Mawr Trust Company (the “Bank”) cease, for any
reason, to constitute a majority thereof, unless the election, or the nomination for election by the Corporation or the Bank’s shareholders, as the
case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors
in office at the time of such election or nomination, who were directors at the beginning of such period.
8.
Non-Interference and Non-Solicitation.
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a. For a period of twelve (12) months following the date Grantee ceases to be employed by the Company Group for any reason,
whether voluntarily or involuntarily (the “Separation Date”), Grantee agrees not to disrupt, damage, impair or interfere with the business of the
Company Group in any manner, including without limitation, by: (a) employing, engaging or soliciting any employee of the Company Group; (b)
inducing or attempting to influence an employee to leave the employ of the Company Group; (c) adversely influencing or altering the relationship of
any person, firm, corporation, partnership, association or other entity (“Person”) with the Company Group, whether such Person is an employee,
customer, client or otherwise; or (d) directly or indirectly, individually or for any other, calling on, engaging in business with, soliciting, inducing, or
attempting to solicit or induce, any Person who has been a customer, client or business referral source of the Company Group, or who has been
solicited as a potential customer, client or business referral source of the Company Group, during the two (2) year period preceding the Separation
Date to (x) cease doing business in whole or in part with or through the Company Group or (y) do business with any other Person which performs
services or offers products materially similar to or competitive with those provided by the Company Group.
b. Grantee shall maintain confidential information (as defined in Section 4(b)) in the strictest of confidence, shall not disclose
confidential information to any person outside of the Company Group, and shall not use, reproduce, disseminate, or take any other action with
respect to confidential information other than in connection with Grantee’s employment and for the benefit of the Company Group. Grantee shall not
remove confidential information from Company Group premises unless necessary in connection with the performance of Grantee’s job duties, and in
such event, such confidential information shall be returned or destroyed immediately upon cessation of Grantee’s employment with the Company
Group. The obligations of Grantee under this Section 8(b) shall apply during Grantee’s employment and following termination of Grantee’s
employment, and shall survive in perpetuity.
c. Grantee acknowledges and agrees that the restrictions contained in this section 8 are reasonable and necessary in order to
protect the legitimate interests of the Company Group and that any violation thereof would result in irreparable injury to the Company Group.
Consequently, Grantee acknowledges and agrees that, in the event of any violation thereof, the Company Group shall be authorized and entitled,
without the necessity of posting a bond or other form of security, to obtain from any court of competent jurisdiction injunctive and equitable relief,
as well as an equitable accounting of all profits and benefits arising out of such violation, which rights and remedies shall be cumulative and in
addition to any other rights or remedies to which the Company Group may be entitled at law or in equity (including the rights of forfeiture set forth
in section 4 hereof) and, in the event the Company Group is required to enforce the terms of this Agreement through court proceedings, the
Company Group shall be entitled to reimbursement of all legal fees, costs and expenses incident to enforcement of any such term, in whole or in part
and/or such term as may be modified by a court of competent jurisdiction.
d. If any court of competent jurisdiction construes any of the restrictive covenants set forth in this section 8, or any part
thereof, to be unenforceable because of the duration, scope or geographic area covered thereby, such court shall have the power to reduce the
duration, scope or geographic area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.
9.
Change Adjustments. The Compensation Committee shall make appropriate adjustments to give effect to adjustments made in
the number of shares of the Corporation’s common stock through a merger, consolidation, recapitalization, reclassification, combination, spinoff,
common stock dividend, stock split or other relevant change as the Compensation Committee deems appropriate to prevent dilution or enlargement
of the rights of the Grantee. Any adjustments or substitutions pursuant to this section shall meet the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and shall be final and binding upon the Grantee.
10.
Compliance with Law and Regulations. The grant of RSUs and the issuance of shares underlying vested RSUs shall be subject
to all applicable federal and state laws, the rules and regulations and to such approvals by any government or regulatory agency as may be
required. The Corporation shall not be required to register any securities pursuant to the Securities Act of 1933, as amended, or to list such shares
under the stock market or exchange on which the common stock of the Corporation may then be listed, or to take any other affirmative action in
order to cause the issuance or delivery of shares underlying vested RSUs to comply with any law or regulation of any governmental authority.
11.
Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be
delivered personally or by mail, postage prepaid, addressed as follows: to the Corporation, Attention: Corporate Secretary, at its office at 801
Lancaster Avenue, Bryn Mawr, PA 19010 or to the Grantee at her/his address on the records of the Corporation or at such other addresses as the
Corporation, or Grantee, may designate in writing from time to time to the other party hereto.
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12.
Employment. Neither the action of the Corporation or its shareholders, nor any action taken by the Compensation Committee
under the Plan nor any provisions of this Agreement shall be construed as giving to the Grantee the right to be retained as an employee of the
Company Group.
13.
Payment of Taxes. Upon issuance of shares underlying the vested RSUs the value of the shares issued, calculated based on
the closing price of the Corporation’s common stock on the day preceding the applicable Vesting Date (whether vested Time-Based RSUs or vested
Performance-Based RSUs), will constitute W-2 wages to the Grantee and, as such, will be subject to statutory federal, state and local withholding
taxes. The Corporation will withhold a sufficient number of whole shares in order to satisfy this tax obligation. The remaining shares will be made
available to the Grantee as soon as practicable. The value of any fractional shares will be paid to the Grantee through a separate disbursement.
14.
Incorporation by Reference. This Restricted Stock Unit Award is granted pursuant and subject to the terms and conditions of
the Plan, the provisions of which are incorporated herein by reference. If any provision of this Agreement conflicts with any provision of the Plan in
effect on the Date of Grant, the terms of the Plan shall control. This Agreement shall not be modified after the Date of Grant except by written
agreement between the Corporation and the Grantee; provided, however, that such modification shall (a) not be inconsistent with the Plan, and
(b) be approved by the Committee.
15.
Reformation; Severability. If any provision of this Agreement shall hereafter be held to be invalid, unenforceable or illegal, in
whole or in part, by a court of competent jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum
extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the
benefits of the parties provided by, this Agreement or (ii) if such provision cannot be so reformed, such provision shall be severed from this
Agreement or the Notice and an equitable adjustment shall be made to this Agreement (including, without limitation, addition of necessary further
provisions) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or
severance shall affect the legality, validity or enforceability of any other provision of this Agreement.
16.
Compliance with Internal Revenue Code Section 409A. It is the intention of the parties that the RSUs and the Agreement
comply with the provisions of Section 409A of the Code to the extent, if any, that such provisions are applicable to the Agreement and the
Agreement will be administered by the Compensation Committee in a manner consistent with this intent. If any payments or benefits may be subject
to taxation under Section 409A of the Code, Grantee agrees that the Compensation Committee may, without the consent of Grantee, modify this
Agreement to the extent and in the manner that the Compensation Committee deems necessary or advisable or take any other action or actions,
including an amendment or action with retroactive effect that the Compensation Committee determines is necessary or appropriate to exempt any
payments or benefits from the application of Section 409A or to provide such payments or benefits in the manner that complies with the provisions
of Section 409A such that they will not be taxable thereunder.
17.
Choice of Law. The provisions of this Agreement shall be construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to any conflict of law provision that would apply the law of another jurisdiction.
18.
Interpretation. The interpretation and construction or any terms or conditions of the Plan or this Agreement by the
Compensation Committee shall be final and conclusive.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by a duly authorized officer, and the Grantee has
hereunto set his/her hand and seal, effective as of the Date of Grant set forth above.
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BRYN MAWR BANK CORPORATION
By:
Name: Michael W. Harrington
Title: Chief Financial Officer
(Signature of Grantee)
(Print Name of Grantee)
(Address of Grantee)
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EXHIBIT A
TO RESTRICTED STOCK UNIT AGREEMENT DATED AS OF [ ]
All of the terms and conditions of the Restricted Stock Unit Agreement dated as of [ ], (“Agreement”), to which this Exhibit is attached are
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement.
Name of Grantee: [ ]
1. Target Number of Performance-Vested Restricted Stock Units subject to vesting based on Total Shareholder Return (“TSR”): ______[ ]
___________
2. Target Number of Performance-Vested Restricted Stock Units subject to vesting based on Return on Average Equity (“ROAE”): _____[ ]
____________
3. Performance Goals: Except as otherwise set forth in the Award Agreement, the number of RSUs (rounded down to the nearest whole number
of RSUs) that become nonforfeitable with respect to the Performance Period in accordance with the terms of the Award Agreement will be based
on the Company’s relative TSR and ROAE Percentile Rank (as defined below) compared to the Peer Group (as defined below) in respect of the
relevant Performance Period, as set forth in the chart below. Notwithstanding anything herein to the contrary, in the event of a Change in
Control, the number of RSUs that vest shall be the greater of (i) 100% of target and (ii) the percent of target that would have been achieved
based on actual TSR and ROAE Percentile Ranks calculated in accordance with the terms of this Exhibit A.
TSR Percentile
Rank1,2
ROAE Percentile
Rank1
Number of RSUs
Vesting
Less than 25%
Less than 25%
25%
25%
50%
50%
75% or Greater
75% or Greater
0 RSUs
0% of target
100% of target
150% of target
1 If the applicable TSR or ROAE Percentile Rank is greater than 25% and less than 75% with respect to the relevant Performance Period, the number
of RSUs that shall vest shall be prorated based on the actual level of performance achieved. For example, performance at the 37.5th percentile
(halfway between the threshold of 25th percentile and the max of 50th percentile) for both metrics would result in 50% of target RSUs vesting
(halfway between 0% at threshold and 100% at target).
2 Provided however, if the Corporation’s TSR over the Performance Period is negative, no more than 100% of the target number of RSUs subject to
TSR will vest.
4. For purposes of this Exhibit A, the following terms shall have the respective meanings set forth below:
a. “Peer Group” means the following financial institutions:
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Company Name
Ticker
(1) Notwithstanding the foregoing, if at any time prior to the expiration of the Performance Period a member of the Peer Group ceases to be a
domestically domiciled publicly traded company on a national stock exchange or market system; or has gone private; or has reincorporated
in a foreign (e.g., non-U.S.) jurisdiction, regardless of whether it is a reporting company in that or another jurisdiction; or has been acquired
by another company (whether by a peer company or otherwise, but not including internal reorganizations), or has sold all or substantially
all of its assets, then such member shall be immediately removed from the Peer Group.
b. “Performance Period” means (i) for measurement of ROAE, the 12-quarter period beginning July 1, 2018 and ending June 30, 2021; and (i) for
measurement of TSR, the 3-year period beginning August 9, 2018 and ending August 9, 2021.
c. “ROAE” means (a) net income applicable to the common shareholders of a company during the Performance Period, divided by (b) that
company’s average common shareholders’ equity during the Performance Period (as reported in the company’s annual or quarterly report for the
applicable fiscal period end) subject to adjustments for certain extraordinary or special items, in the form and manner determined in the
Committee’s sole discretion and if permitted by the IRS regulations under Section 162(m) of the Internal Revenue Code of 1986, as amended,
relating to the “pre-established performance goal” rules, for any: change in accounting policy; gain/loss on disposition of assets or business;
charge for goodwill impairment; extraordinary legal/regulatory settlements; extraordinary market conditions; significant currency fluctuations;
effects of nature or man-made disasters; hyperinflation; change in statutory tax rates/regulations; charges or costs associated with Board-
approved restructurings of the Company, including, but not limited to, acquisitions and mergers by the Company; results of discontinued
operations held for sale after sale closing; other extraordinary, unusual or infrequently occurring items as determined under U.S. generally
accepted accounting principles (“GAAP”).
d. “TSR” means, with respect to any company, the Company’s total shareholder return, which will be calculated by dividing (i) the Closing Average
Share Value by (ii) the Opening Average Share Value.
e. “Opening Average Share Value” means the average, over the trading days in the Opening Average Period, of the closing price of a company’s
stock multiplied by the Accumulated Shares for each trading day during the Opening Average Period.
f. “Opening Average Period” means the 20 trading days preceding August 9, 2018.
g. “Accumulated Shares” means, solely for purposes of the calculation of TSR, for a given trading day, the sum of (i) one (1) share and (ii) a
cumulative number of shares of the company’s common stock purchased with the dividends declared on a company’s common stock, assuming
same day reinvestment of the dividends in the common stock of a company at the closing price on the ex-dividend date, for ex-dividend dates
between the start of the Opening Average Period and the trading day.
h. “Closing Average Share Value” means the average, over the trading days in the Closing Average Period, of the closing price of the company’s
stock multiplied by the Accumulated Shares for each trading day during the Closing Average Period.
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i. “Closing Average Period” means (i) in the absence of a Change in Control, the 20 trading days preceding August 9, 2021; or (ii) in the case of a
Change in Control, the trading days during the period beginning thirty (30) calendar days prior to the Change in Control and ending on the
Accelerated End Date.
j. “Accelerated End Date” means the date five (5) calendar days (or such shorter period as may be established by the Compensation Committee in its
sole discretion) prior to the Change in Control.
k. “Percentile Rank” means the Company’s relative percentile positioning in respect of the TSR or ROAE, as applicable, of the other members of the
Peer Group.
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Section 3: EX-10.8 (EXHIBIT 10.8)
BRYN MAWR BANK CORPORATION
RESTRICTED STOCK UNIT AGREEMENT FOR NON-EMPLOYEE DIRECTORS
(SERVICE/PERFORMANCE-BASED)
SUBJECT TO THE AMENDED AND RESTATED 2010 LONG TERM INCENTIVE PLAN
Grantee: [ ]
Date of Grant: [ ]
Total Number of RSUs: [ ]
Number of time-based RSUs: [ ] (“Time-Based RSUs”)
Target number of performance-based RSUs: [ ] (“Performance-Based RSUs”)
Service Period: [ ] to [ ] (“Service Period”)
Performance Goal:
Certain conditions and goals as determined according to Exhibit A hereto
RESTRICTED STOCK UNIT AGREEMENT (“Agreement”), dated as of the Date of Grant set forth above by and between BRYN MAWR
BANK CORPORATION (the “Corporation”) and the Grantee named above (the “Grantee”).
1.
The Plan. This Agreement is subject to the terms and conditions of the Amended and Restated Bryn Mawr Bank Corporation
2010 Long Term Incentive Plan (the “Plan”) as approved by the Board of Directors of the Corporation on February 27, 2015 and by the
Corporation’s shareholders on April 30, 2015. Except as otherwise specified herein, all capitalized terms used in this Agreement shall have the
meanings given to them in the Plan.
2.
Grant of Restricted Stock Units.
a. Subject to the terms and conditions of the Plan and this Agreement, and the Grantee’s acceptance of same by execution of
this Agreement, the Corporation’s Management Development and Compensation Committee (“Compensation Committee”) hereby grants to the
Grantee the number of Restricted Stock Units set forth under “Total Number of RSUs” above (the “RSUs”).
b. Upon vesting of the RSUs and satisfaction of all of the other terms and conditions in this Agreement, the Corporation will
issue stock representing the shares underlying the vested RSUs (regardless of whether such RSUs are Time-Based RSUs or Performance-Based
RSUs) as soon as practicable following the Time Vesting Date (as defined in subsection 3(a) below), in the case of the vested Time-Based RSUs,
and the Performance Vesting Date (as defined in subsection 3(b) below)), in the case of the Performance-Based RSUs.
3.
Terms and Conditions. The Grant is subject to the following terms and conditions:
a. Time-Based Requirements. The Time-Based RSUs will vest on August 9, 2021 (such date, the “Time Vesting Date”), provided
that Grantee provides continuous service as a director of the Corporation from the Date of Grant through the Time Vesting Date.
b. Performance Goals. The Performance-Based RSUs are subject to the performance goals set forth in Exhibit A (the
“Performance Goals”) and shall vest, in whole or in part, upon the Performance Vesting Date only if the
Performance Goals are achieved and the Grantee has provided continuous service as a director of the Corporation through the end of the Service
Period, or as otherwise provided herein. The Compensation Committee shall determine within 75 days after the last day of the Service Period
whether the Performance Goals have been achieved, in whole or in part, in accordance with Exhibit A attached hereto. The value of any fractional
shares will be paid to the Grantee through a separate disbursement. No vesting of Performance-Based RSUs shall be deemed to have occurred
unless and until the Compensation Committee certifies in writing as to the portion of Performance Goals that have been achieved. The date on
which the Compensation Committee certifies as to the achievement of the Performance Goals and the vesting of the Performance-Based RSUs is
referred to in this Agreement as the “Performance Vesting Date”.
c. No Rights as a Shareholder. Grantee will have no rights or privileges of a shareholder (including but not limited to, no right to
vote the shares) with respect to shares underlying RSUs until such RSUs have vested and such shares have been issued.
d. Dividend-Equivalents. At the time of issuance of shares underlying vested RSUs pursuant to subsection 2(b) above, the
Corporation shall also pay to Grantee an amount equal to the aggregate amount of all dividends declared and paid by the Corporation based on
dividend record dates falling between the Date of Grant and the date of issuance in accordance with the number of shares issued. The computation
set forth in this subparagraph is separate and distinct from the calculations and concepts set forth on Exhibit “A” hereto and the calculations and
concepts set forth on Exhibit “A” hereto have no applicability to the calculation of the amount of dividends to be paid by the Corporation pursuant
to this subparagraph.
e. Holding Period. All vested RSUs will be subject to a holding period (“Holding Period”) until the earliest of:
i. The two-year anniversary of such Time Vesting Date or Performance Vesting Date, as applicable;
ii. The date of the Grantee’s death or Disability (as defined in section 5 below); or
iii. The date of consummation of a Change in Control (as defined in section 7 below).
For purposes of clarification, once shares underlying vested RSUs have been issued and until the expiration of the applicable
Holding Period, Grantee shall have all of the rights and privileges of a shareholder with respect to such shares other than the right to sell, transfer,
gift, or otherwise divest himself or herself of such shares. Notwithstanding anything herein to the contrary, the Corporation may lift the Holding
Period with respect to any shares underlying vested RSUs where the sale of such shares is necessary to satisfy the payment of statutory federal,
state and local withholding taxes including, without limitation, social security and medicare taxes.
4.
Forfeiture.
a. Forfeiture. All Time-Based RSUs that have not vested at the Time Vesting Date in accordance with subsection 3(a), and all
Performance-Based RSUs that have not vested at the Performance Vesting Date in accordance with subsection 3(b) and Exhibit A attached hereto,
shall be forfeited in their entirety.
b. Forfeiture of Unvested RSUs and Payment to the Corporation for Issued Shares Resulting from Vested RSUs If Grantee
Engages in Certain Activities. The provisions of this subsection 4(b) will apply to all RSUs granted to Grantee under the Plan and to any shares
issued to the Grantee upon vesting of RSUs. If, at any time during the Service Period, or for a period of two (2) years after termination of Grantee’s
service as a director of the Corporation for any reason, Grantee engages in any activity inimical, contrary or harmful to the interests of the
Corporation including, but not limited to (A) conduct related to Grantee’s service for which either criminal or civil penalties against Grantee may be
brought, (B) violation of the Corporation’s or the Bank’s policies including, without limitation, the Insider Trading Policy, Code of Business
Conduct and Ethics, Code of Personal Conduct, Employee Handbook, or otherwise, (C) soliciting of any customer of the Corporation or any of its
direct or indirect subsidiaries (individually and collectively, the “Company Group”) for
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business which would result in such customer terminating their relationship with the Company Group; soliciting or inducing any individual who is
an employee or director of the Company Group to leave the Company Group or otherwise terminate their relationship with the Company Group,
(D) disclosing or using any confidential information or material concerning the Company Group, (E) breach of any agreement between the Grantee
and the Company Group, or (F) participating in a hostile takeover attempt, then (x) all RSUs that have not vested effective as of the date on which
Grantee engages in such activity, unless forfeited sooner by operation of another term or condition of this Agreement or the Plan, shall be forfeited
in their entirety, and (y) for any shares underlying vested RSUs which have been issued to Grantee, the Grantee shall pay to the Corporation the
market value of the shares on the date of issuance or the date Grantee engages in such activity, whichever is greater. The term “Confidential
Information” as used in this Agreement includes, but is not limited to, records, documents, programs, technical data, information technology,
policies, files, lists, client non-public personal information, pricing, costs, strategies, market data, statistics, business partners, customers, customer
requirements, prospective customer contacts, knowledge of the Company Group’s clients, methods of operation, processes, trade secrets, methods
of determination of prices, fees, financial condition, profits, sales, net income, indebtedness, potential mergers or acquisitions, or the sale of
Company Group assets or subsidiaries, commercial contracts and relationships, employees, litigation (whether actual or threatened), information
acquired in connection with the Grantee’s role as a director to the Company, whether through board meetings, deliberations or discussions among
directors, Company Group employees or agents, or relating to board dynamics generally, including, without limitation, proprietary or confidential
information of any third party who may disclose such information to the Company Group or the Grantee in the course of Company Group business,
and any other information relating to the Company Group that has not been made available to the general public, as the same may exist from time to
time. The provisions of this Section 4 are in addition to, and in no way decrease, limit, or affect the applicability of or relief available to the
Corporation under Section 8.
c. Right of Setoff. By accepting this Agreement, Grantee consents to the deduction, to the extent permitted by law, from any
amounts that the Company Group owes Grantee from time to time and the amounts Grantee owes the Corporation under subsection 4(b) above.
Whether or not the Corporation elects to make any setoff in whole or in part, if the Corporation does not recover by means of setoff the full amount
Grantee owes it, calculated as set forth above, Grantee agrees to immediately pay the unpaid balance to the Corporation.
d. Compensation Committee Discretion. Grantee may be released from Grantee’s obligations under subsections 4(b) and 4(c)
only if the Compensation Committee, or its duly appointed agent, determines in its sole discretion that such action is in the best interest of the
Corporation.
5.
Death, Disability or Retirement. In the event the Grantee shall cease to be a director of the Corporation prior to the expiration of
the Service Period by reason of: (a) Retirement; (b) a transfer of the Grantee in a spinoff; (c) death; or (d) total and permanent disability as
determined by the Compensation Committee (“Disability”), then the vesting requirements on a fraction of Grantee’s RSUs will be deemed to have
been fulfilled. With respect to the Time-Based RSUs, the vested portion shall be calculated as follows: the number of Time-Based RSUs granted
multiplied by a fraction, the numerator of which is the number of full calendar months that elapsed in the Service Period prior to the death, Disability,
Retirement or transfer in a spinoff of the Grantee and the denominator of which is the total number of full calendar months in the Service Period.
With respect to the Performance-Based RSUs, the vested portion shall be calculated as follows: the number of Performance-Based RSUs that would
have vested in accordance with Section 3(b) had Grantee remained a director through the Service Period, multiplied by a fraction, the numerator of
which is the number of full calendar months that elapsed in the Service Period prior to the death, Disability, Retirement or transfer in a spinoff of the
Grantee and the denominator of which is the total number of full calendar months in the Service Period. Shares underlying all Time-Based RSUs that
vest in accordance with the terms of this Section 5 shall be issued as soon as practicable following such vesting and Performance-Based RSUs that
vest in accordance with the terms of this Section 5 shall be issued as soon as practicable following the Performance Vesting Date. Any remaining
RSUs which have not vested as provided in this section 5 shall be forfeited.
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6.
Termination. If the Grantee ceases to be a director of the Corporation prior to the expiration of the Service Period for any reason
other than as described in section 5 above, any RSUs that have not yet vested at the date of termination shall automatically be forfeited.
7.
Change in Control. In the event of a Change in Control, Grantee’s outstanding RSUs will be deemed to have vested and any
shares underlying such RSUs not previously issued shall be issued within ten days after the Change in Control. For purposes of clarification, in
such a situation, all Time-Based RSUs will vest, and Performance-Based RSUs will vest at the target levels as described in Exhibit A hereto. A
“Change in Control” shall be deemed to have taken place if (i) any Person (as defined below) other than an entity in the Company Group or an
employee benefit plan of the Company Group (or any Person organized, appointed or established by the Company Group for or pursuant to the
terms of any such employee benefit plan), together with all affiliates and associates of such Person, becomes the beneficial owner in the aggregate
of 25% or more of the common stock of the Corporation then outstanding, or (ii) during any twenty-four month period, individuals who at the
beginning of such period constituted the Board of Directors of the Corporation or The Bryn Mawr Trust Company (the “Bank”) cease, for any
reason, to constitute a majority thereof, unless the election, or the nomination for election by the Corporation or the Bank’s shareholders, as the
case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors
in office at the time of such election or nomination, who were directors at the beginning of such period.
8.
Non-Interference and Non-Solicitation.
a. For a period of twelve (12) months following the date Grantee ceases to be a director of the Corporation for any reason,
whether voluntarily or involuntarily (the “Separation Date”), Grantee agrees not to disrupt, damage, impair or interfere with the business of the
Company Group in any manner, including without limitation, by: (a) employing, engaging or soliciting any employee of the Company Group; (b)
inducing or attempting to influence an employee to leave the employ of the Company Group; (c) adversely influencing or altering the relationship of
any person, firm, corporation, partnership, association or other entity (“Person”) with the Company Group, whether such Person is an employee,
customer, client or otherwise; or (d) directly or indirectly, individually or for any other, calling on, engaging in business with, soliciting, inducing, or
attempting to solicit or induce, any Person who has been a customer, client or business referral source of the Company Group, or who has been
solicited as a potential customer, client or business referral source of the Company Group, during the two (2) year period preceding the Separation
Date to (x) cease doing business in whole or in part with or through the Company Group or (y) do business with any other Person which performs
services or offers products materially similar to or competitive with those provided by the Company Group.
b. Grantee shall maintain confidential information (as defined in Section 4(b)) in the strictest of confidence, shall not disclose
confidential information to any person outside of the Company Group, and shall not use, reproduce, disseminate, or take any other action with
respect to confidential information other than in connection with Grantee’s provision of services as a director of the Corporation and for the benefit
of the Company Group. Grantee shall not remove confidential information from Company Group premises unless necessary in connection with the
performance of Grantee’s service, and in such event, such confidential information shall be returned or destroyed immediately upon cessation of
Grantee’s service with the Company Group. The obligations of Grantee under this Section 8(b) shall apply during Grantee’s provision of services
and following termination of Grantee’s provision of services, and shall survive in perpetuity.
c. Grantee acknowledges and agrees that the restrictions contained in this section 8 are reasonable and necessary in order to
protect the legitimate interests of the Company Group and that any violation thereof would result in irreparable injury to the Company Group.
Consequently, Grantee acknowledges and agrees that, in the event of any violation thereof, the Company Group shall be authorized and entitled,
without the necessity of posting a bond or other form of security, to obtain from any court of competent jurisdiction injunctive and equitable relief,
as well as an equitable accounting of all profits and benefits arising out of such violation, which rights and remedies shall be cumulative and in
addition to any other rights or remedies to which the Company Group may be entitled at law or in equity (including the rights of forfeiture set forth
in section 4 hereof) and, in the event the Company Group is required to enforce the terms of this Agreement through
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court proceedings, the Company Group shall be entitled to reimbursement of all legal fees, costs and expenses incident to enforcement of any such
term, in whole or in part and/or such term as may be modified by a court of competent jurisdiction.
d. If any court of competent jurisdiction construes any of the restrictive covenants set forth in this section 8, or any part
thereof, to be unenforceable because of the duration, scope or geographic area covered thereby, such court shall have the power to reduce the
duration, scope or geographic area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.
9.
Change Adjustments. The Compensation Committee shall make appropriate adjustments to give effect to adjustments made in
the number of shares of the Corporation’s common stock through a merger, consolidation, recapitalization, reclassification, combination, spinoff,
common stock dividend, stock split or other relevant change as the Compensation Committee deems appropriate to prevent dilution or enlargement
of the rights of the Grantee. Any adjustments or substitutions pursuant to this section shall meet the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and shall be final and binding upon the Grantee.
10.
Compliance with Law and Regulations. The grant of RSUs and the issuance of shares underlying vested RSUs shall be subject
to all applicable federal and state laws, the rules and regulations and to such approvals by any government or regulatory agency as may be
required. The Corporation shall not be required to register any securities pursuant to the Securities Act of 1933, as amended, or to list such shares
under the stock market or exchange on which the common stock of the Corporation may then be listed, or to take any other affirmative action in
order to cause the issuance or delivery of shares underlying vested RSUs to comply with any law or regulation of any governmental authority.
11.
Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be
delivered personally or by mail, postage prepaid, addressed as follows: to the Corporation, Attention: Corporate Secretary, at its office at 801
Lancaster Avenue, Bryn Mawr, PA 19010 or to the Grantee at her/his address on the records of the Corporation or at such other addresses as the
Corporation, or Grantee, may designate in writing from time to time to the other party hereto.
12.
Incorporation by Reference. This Restricted Stock Unit Award is granted pursuant and subject to the terms and conditions of
the Plan, the provisions of which are incorporated herein by reference. If any provision of this Agreement conflicts with any provision of the Plan in
effect on the Date of Grant, the terms of the Plan shall control. This Agreement shall not be modified after the Date of Grant except by written
agreement between the Corporation and the Grantee; provided, however, that such modification shall (a) not be inconsistent with the Plan, and
(b) be approved by the Committee.
13.
Reformation; Severability. If any provision of this Agreement shall hereafter be held to be invalid, unenforceable or illegal, in
whole or in part, by a court of competent jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum
extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the
benefits of the parties provided by, this Agreement or (ii) if such provision cannot be so reformed, such provision shall be severed from this
Agreement or the Notice and an equitable adjustment shall be made to this Agreement (including, without limitation, addition of necessary further
provisions) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or
severance shall affect the legality, validity or enforceability of any other provision of this Agreement.
14.
Compliance with Internal Revenue Code Section 409A. It is the intention of the parties that the RSUs and the Agreement
comply with the provisions of Section 409A of the Code to the extent, if any, that such provisions are applicable to the Agreement and the
Agreement will be administered by the Compensation Committee in a manner consistent with this intent. If any payments or benefits may be subject
to taxation under Section 409A of the Code, Grantee agrees that the Compensation Committee may, without the consent of Grantee, modify this
Agreement to the extent and in the manner that the Compensation Committee deems necessary or advisable or take any other action or actions,
including an amendment or action with retroactive effect that the Compensation Committee determines is necessary or appropriate to exempt any
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payments or benefits from the application of Section 409A or to provide such payments or benefits in the manner that complies with the provisions
of Section 409A such that they will not be taxable thereunder.
15.
Choice of Law. The provisions of this Agreement shall be construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to any conflict of law provision that would apply the law of another jurisdiction.
16.
Interpretation. The interpretation and construction or any terms or conditions of the Plan or this Agreement by the
Compensation Committee shall be final and conclusive.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by a duly authorized officer, and the Grantee has
hereunto set his/her hand and seal, effective as of the Date of Grant set forth above.
BRYN MAWR BANK CORPORATION
By:
Name: Michael W. Harrington
Title: Chief Financial Officer
(Signature of Grantee)
(Print Name of Grantee)
(Address of Grantee)
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EXHIBIT A
TO RESTRICTED STOCK UNIT AGREEMENT DATED AS OF [ ]
All of the terms and conditions of the Restricted Stock Unit Agreement dated as of [ ], (“Agreement”), to which this Exhibit is attached are
incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement.
Name of Grantee: [ ]
1. Target Number of Performance-Vested Restricted Stock Units subject to vesting based on Total Shareholder Return (“TSR”): ____[ ]
_____________
2. Target Number of Performance-Vested Restricted Stock Units subject to vesting based on Return on Average Equity (“ROAE”): _________
[ ]________
3. Performance Goals: Except as otherwise set forth in the Award Agreement, the number of RSUs (rounded down to the nearest whole number
of RSUs) that become nonforfeitable with respect to the Performance Period in accordance with the terms of the Award Agreement will be based
on the Company’s relative TSR and ROAE Percentile Rank (as defined below) compared to the Peer Group (as defined below) in respect of the
relevant Performance Period, as set forth in the chart below. Notwithstanding anything herein to the contrary, in the event of a Change in
Control, the number of RSUs that vest shall be the greater of (i) 100% of target and (ii) the percent of target that would have been achieved
based on actual TSR and ROAE Percentile Ranks calculated in accordance with the terms of this Exhibit A.
TSR Percentile
Rank1,2
ROAE Percentile
Rank1
Number of RSUs
Vesting
Less than 25%
Less than 25%
25%
25%
50%
50%
75% or Greater
75% or Greater
0 RSUs
0% of target
100% of target
150% of target
1 If the applicable TSR or ROAE Percentile Rank is greater than 25% and less than 75% with respect to the relevant Performance Period, the number
of RSUs that shall vest shall be prorated based on the actual level of performance achieved. For example, performance at the 37.5th percentile
(halfway between the threshold of 25th percentile and the max of 50th percentile) for both metrics would result in 50% of target RSUs vesting
(halfway between 0% at threshold and 100% at target)..
2 Provided however, if the Corporation’s TSR over the Performance Period is negative, no more than 100% of the target number of RSUs subject to
TSR will vest.
4. For purposes of this Exhibit A, the following terms shall have the respective meanings set forth below:
a. “Peer Group” means the following financial institutions:
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Company Name
Ticker
(1) Notwithstanding the foregoing, if at any time prior to the expiration of the Performance Period a member of the Peer Group ceases to be a
domestically domiciled publicly traded company on a national stock exchange or market system; or has gone private; or has reincorporated
in a foreign (e.g., non-U.S.) jurisdiction, regardless of whether it is a reporting company in that or another jurisdiction; or has been acquired
by another company (whether by a peer company or otherwise, but not including internal reorganizations), or has sold all or substantially
all of its assets, then such member shall be immediately removed from the Peer Group.
b. “Performance Period” means (i) for measurement of ROAE, the 12-quarter period beginning July 1, 2018 and ending June 30, 2021; and (i) for
measurement of TSR, the 3-year period beginning August 9, 2018 and ending August 9, 2021.
c. “ROAE” means (a) net income applicable to the common shareholders of a company during the Performance Period, divided by (b) that
company’s average common shareholders’ equity during the Performance Period (as reported in the company’s annual or quarterly report for the
applicable fiscal period end) subject to adjustments for certain extraordinary or special items, in the form and manner determined in the
Committee’s sole discretion and if permitted by the IRS regulations under Section 162(m) of the Internal Revenue Code of 1986, as amended,
relating to the “pre-established performance goal” rules, for any: change in accounting policy; gain/loss on disposition of assets or business;
charge for goodwill impairment; extraordinary legal/regulatory settlements; extraordinary market conditions; significant currency fluctuations;
effects of nature or man-made disasters; hyperinflation; change in statutory tax rates/regulations; charges or costs associated with Board-
approved restructurings of the Company, including but not limited to, acquisitions and mergers by the Company; results of discontinued
operations held for sale after sale closing; other extraordinary, unusual or infrequently occurring items as determined under U.S. generally
accepted accounting principles (“GAAP”).
d. “TSR” means, with respect to any company, the Company’s total shareholder return, which will be calculated by dividing (i) the Closing Average
Share Value by (ii) the Opening Average Share Value.
e. “Opening Average Share Value” means the average, over the trading days in the Opening Average Period, of the closing price of a company’s
stock multiplied by the Accumulated Shares for each trading day during the Opening Average Period.
f. “Opening Average Period” means the 20 trading days preceding August 9, 2018.
g. “Accumulated Shares” means, solely for purposes of the calculation of TSR, for a given trading day, the sum of (i) one (1) share and (ii) a
cumulative number of shares of the company’s common stock purchased with the dividends declared on a company’s common stock, assuming
same day reinvestment of the dividends in the common stock of a company at the closing price on the ex-dividend date, for ex-dividend dates
between the start of the Opening Average Period and the trading day.
h. “Closing Average Share Value” means the average, over the trading days in the Closing Average Period, of the closing price of the company’s
stock multiplied by the Accumulated Shares for each trading day during the Closing Average Period.
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i. “Closing Average Period” means (i) in the absence of a Change in Control, the 20 trading days preceding August 9, 2021; or (ii) in the case of a
Change in Control, the trading days during the period beginning thirty (30) calendar days prior to the Change in Control and ending on the
Accelerated End Date.
j. “Accelerated End Date” means the date five (5) calendar days (or such shorter period as may be established by the Compensation Committee in its
sole discretion) prior to the Change in Control.
k. “Percentile Rank” means the Company’s relative percentile positioning in respect of the TSR or ROAE, as applicable, of the other members of the
Peer Group.
(Back To Top)
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Section 4: EX-10.9 (EXHIBIT 10.9)
THE BRYN MAWR TRUST COMPANY
EXECUTIVE CHANGE-OF-CONTROL
SEVERANCE AGREEMENT
This Agreement made as of [DATE] between The Bryn Mawr Trust Company, a Pennsylvania financial institution, subject to
the provisions of the Pennsylvania Banking Code of 1965, as amended (the “Company”), and [NAME] (the “Employee”).
WHEREAS, the Employee has entered into an employment letter agreement of even date herewith and will be employed by
the Company as its [TITLE] beginning [START DATE];
WHEREAS, the Company considers it essential to foster the employment of well qualified key management personnel, and, in
this regard, the board of directors of the Company recognizes that, as is the case with many financial institutions, the possibility of a
change of control of the Company’s publicly held parent company, Bryn Mawr Bank Corporation, (“BMBC”) may exist and that
such possibility, and the uncertainty and questions which it may raise among the Company’s management, may result in the
departure or distraction of key management personnel to the detriment of the Company and ultimately to the detriment of BMBC
and its shareholders;
WHEREAS, the Boards of Directors of the Company and BMBC have determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of key members of the Company’s management to their assigned
duties, without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the
BMBC, although no such change is now contemplated; and
WHEREAS, in order to induce the Employee, who will be a key member of the Company’s management, to become an
employee of the Company, the Company agrees that the Employee shall receive the compensation and benefits set forth in this
Agreement in the event his/her employment with the Company is terminated subsequent to a “Change of Control” (as defined in
Section 1 hereof) of BMBC, as a cushion against the financial and career impact on the Employee of any such Change of Control;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions. For all purposes of this Agreement, the following terms shall have the meanings specified in this Section, unless
the context clearly otherwise requires:
(a) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations issued under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(b) “AIP” shall mean any Annual Incentive Plan of the Company, as in effect immediately prior to a Change of Control,
or predecessor or prior plan, including the Company’s annual bonus plan applicable to Employee.
(c) “Base Salary” shall mean the total cash remuneration earned by the Employee on an annualized basis in all capacities
with the Company and its Subsidiaries, including, without limitation, any amounts the payment of which has been deferred by the
Employee, excluding only payments earned by or allocated to the Employee under the AIP.
(d) A Person shall be deemed the “Beneficial Owner” of any securities:
(i) that such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the “Beneficial Owner” of securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted
for payment, purchase or exchange;
(ii) that such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or
has “beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations issued under the
Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the “Beneficial Owner” of any security under this subsection (ii) as a
result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or
understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the General Rules and Regulations issued under the Exchange Act, and
(B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report);
or
(iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person’s Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to
subsection (ii) above) or disposing of any voting securities of BMBC; provided, however, that nothing in this Section 1(d) shall
cause a Person engaged in business as an underwriter of securities to be the “Beneficial Owner” of any securities acquired
through such Person’s participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after
the date of such acquisition.
(e) “Board” shall mean the board of directors of the Company or BMBC as the context of this Agreement indicates.
(f) “Change of Control” shall be deemed to have taken place if (i) any Person (except BMBC, any Subsidiary of
BMBC, any employee benefit plan of BMBC or the Company, any Person or entity organized, appointed or established by
BMBC or any Subsidiary of BMBC for or pursuant to the terms of any such employee benefit plan) together with all Affiliates and
Associates of such Person, shall become the Beneficial Owner in the aggregate of 25% or more of the common stock of BMBC
then outstanding, or (ii) during any twenty-four month period,
individuals who at the beginning of such period constituted the Board of BMBC or the Company cease, for any reason, to
constitute a majority thereof, unless the election, or the nomination for election by BMBC’s or the Company’s shareholders, as the
case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two-thirds
of the directors in office at the time of such election or nomination, who were directors at the beginning of such period.
(g) “Common Stock” shall mean the outstanding common stock of BMBC.
(h) “Person” shall mean any individual, firm, corporation, partnership or other entity.
(i) “Separation from Service” means, the Employee’s “separation from service”, within the meaning of Section 409A of
the Code, from the Company To the extent required by the definition of “separation from service” under Section 409A of the
Code, “Separation from Service” shall mean the Employee’s separation from service (as so defined) from both the Company and
all other persons with whom the Company would be considered a “single employer under Section 414(b) or (c) of the Code, but
replacing the phrase “at least 80 per cent” with the phrase “at least 50%” where it appears in Section 1563(a)(1), 2, and 3 of the
Code and in the regulations under Section 414(c).
(j) “Specified Employee” means an individual who is a “specified employee” with respect to the Company within the
meaning of Section 409A of the Code.”
(k) “Stock Plan” shall mean (i) BMBC’s Amended and Restated 2010 Long Term Incentive Plan; and (ii) any other
stock option plan, stock option and stock appreciation rights plan, stock bonus plan, stock grant plan, or similar benefit plan
established by BMBC and which exists for the benefit of the Employee at the time of a Change in Control.
(l) “Subsidiary” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations issued
under the Exchange Act.
(m) “Termination Date” shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any
later date specified therein, as the case may be.
(n) “Termination upon a Change of Control” shall mean a Separation from Service upon or within two (2) years after a
Change of Control either:
(i) initiated by the Company for any reason other than (x) the Employee’s continuous illness, injury or incapacity for a period of
six consecutive months or (y) for “cause,” which shall mean misappropriation of funds, habitual insobriety, substance abuse,
conviction of a crime involving moral turpitude, or gross negligence in the performance of his/her duties, which gross negligence
has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its
Subsidiaries or BMBC and its Subsidiaries taken as a whole; or
(ii) initiated by the Employee following one or more of the following occurrences:
(A) a significant reduction by the Company or BMBC (if the Employee is an officer of BMBC) of the authority, duties or
responsibilities of the Employee immediately prior to the Change of Control;
(B) any removal of the Employee from his/her officer position with BMBC, the Company and its Subsidiaries held by him/her
immediately prior to the Change of Control, except in connection with promotions to higher office;
(C) a reduction by the Company in the Employee’s Base Salary as in effect immediately prior to the Change of Control;
(D) revocation or any modification of the AIP or Stock Plan, or any action taken pursuant to the terms of either plan, which
materially (x) reduces the opportunity to receive compensation under any or both of such plans of equivalent amounts received
by the Employee during the three (3) fiscal years immediately preceding the Change of Control, subject to the right of the
Boards of Directors of BMBC or the Company, as appropriate, to establish in a manner consistent with past practice, prior to
the Change of Control, reasonable goals under the AIP or Stock Plan, (y) reduces the compensation payable to the Employee
under either or both of such plans but which does not effect comparable reductions in the compensation payable to the other
participants in such plans, or (z) increases the compensation payable to other participants in either or both of such plans but
which does not effect corresponding increases in the amount of compensation payable to the Employee;
(E) a transfer of the Employee, without his/her express written consent, to a location which is outside the Greater Philadelphia
area (or the general area in which his/her principal place of business immediately preceding the Change of Control may be
located at such time, if other than Bryn Mawr, Pennsylvania), or which is otherwise an unreasonable commuting distance from
the Employee’s principal residence at the date of the Change of Control;
(F) the Employee being required to undertake business travel to an extent substantially greater than the Employee’s business
travel obligations immediately prior to the Change of Control; or
(G) any failure of the Company to comply with and satisfy Section 13 of this Agreement.
2. Notice of Termination. Any Termination upon a Change of Control shall be communicated by a Notice of Termination to
the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a “Notice of Termination”
means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the
facts and circumstances deemed to provide a basis for termination of the Employee’s employment under the provision so indicated,
and (iii) if the Termination Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall not
be more than 15 days after the giving of such notice).
3. Severance Compensation upon Termination. Subject to the provisions of Section 10 hereof, in the event of the Employee’s
Termination upon a Change of Control, the Company shall pay to the Employee, within fifteen (15) days after the Termination Date
(or as soon as possible thereafter in the event that the procedures set forth in paragraph (b) of Section 11 hereof cannot be
completed within fifteen (15) days) an amount in cash equal to [____ (_)] times the sum of the
Employee’s Base Salary in effect either immediately prior to the Separation from Service or immediately prior to the Change of
Control, whichever is higher.
4. Other Payments. Subject to the provisions of Section 10 hereof, in the event of the Employee’s Termination upon a Change
of Control, the Company shall:
(a) pay to the Employee within fifteen (15) days after the Termination Date:
(i) unless the Employee has exercised such options, an amount equal to the excess, if any, of the aggregate fair market value of
the shares of BMBC’s Common Stock subject to all stock options outstanding and unexercised as of the Termination Date,
whether vested or unvested, granted to the Employee under the Stock Plan, over the aggregate exercise price of all such stock
options. For purposes of this paragraph, fair market value shall mean the highest of (x) the closing price of BMBC’s Common
Stock on the last business day the Common Stock was traded immediately preceding the Termination Date, if such Common
Stock is publicly traded at such date, (y) if such Common Stock is not publicly traded at the Termination Date, the value
determined by an independent appraiser, such appraiser to be selected by the Employee and to be reasonably satisfactory to
the Company (the fees and expenses of such appraiser to be borne by the Company), or (z) the highest per share price of
BMBC’s Common Stock paid (in connection with the Change of Control or at any time thereafter) by the Person or group
whose acquisition of shares of Common Stock of BMBC has given rise to a Change of Control;
(ii) to the extent not theretofore paid, the Employee’s Base Salary through the Termination Date and a further amount equal to
the Employee’s salary in lieu of his/her unused vacation pay, if any, both calculated at the salary rate in effect on the Termination
Date, or, if higher, at the highest rate in effect at any time within the 90-day period preceding the Termination Date;
(iii) to the extent not theretofore paid, an amount equal to all awards earned by the Employee under the AIP in respect of
complete plan periods prior to the Termination Date (excluding all amounts the payment of which was previously deferred under
such plans which shall be payable in accordance with their terms). In the event that the Company’s financial statements for any
fiscal years, included in such plan periods, have not yet been completed at the Termination Date, the Company shall pay to the
Employee the amounts due hereunder as soon as possible thereafter;
(iv) payment in respect of the AIP for the uncompleted fiscal year during which Separation from Service occurs determined by
multiplying the amount determined in Section 4(a)(iii) by a fraction, the numerator of which shall be the number of days between
the Termination Date and the last day of the last full fiscal year prior to the Termination Date and the denominator of which shall
be Three Hundred Sixty Five (365); and
(b) to the extent permitted by applicable law, continue or cause to be continued until [______ (__) whole months] after
the Termination Date, on the cost-sharing basis in effect immediately prior to the Change of Control, medical, dental, life and
disability insurance benefits substantially equivalent in all material respects to and payable in the same amounts and according to the
same schedule as those furnished by the Company to the Employee immediately
prior to the Change of Control; provided, however, that the obligation of the Company to provide such benefits shall cease at such
time as the Employee is employed on a full-time basis by a Person not owned or controlled by the Employee that provides the
Employee, on substantially the same cost-sharing basis between the Company and the Employee in effect immediately prior to the
Change of Control, with medical, dental, life and disability insurance benefits substantially equivalent in all material respects to those
furnished by the Company and its Subsidiaries to the Employee immediately prior to the Change of Control;
(c) pay for reasonable career counseling services provided by [_________] or any such equivalent agency satisfactory
to both the Company and the Employee payable in the same amounts and on the same schedule as in effect, immediately prior to
the Change of Control, and payable for no more than [______ (__) whole months] after the Termination Date.
(d) Payments or reimbursements pursuant to subsection (b) and (d) of this Section 4 shall be subject to the following
conditions:
(i) Payments shall be made on a calendar year basis;
(ii) Amounts payable with respect to a calendar year shall not affect amounts payable with respect to another calendar year;
and
(iii) Payments with respect to expenses incurred must be made no later than the end of the calendar year following the
calendar year in which they were incurred.
4A. Six (6) Month Delay in Payments. Notwithstanding anything in this Agreement to the contrary, if the Employee is a
Specified Employee on the date of his Separation From Service, then in no event shall any amount payable to him or her be paid
before the date that is six months after the date of such Separation From Service.
5. Establishment of Trust. Immediately upon a Change of Control as herein defined, the Company shall establish an
irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund
shall be subject to the Company’s discretion, as to be set forth in the agreement pursuant to which the trust fund will be established.
6. Enforcement.
(a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections
3 and 4 hereof within the respective time periods provided therein, the Company shall pay to the Employee, in addition to the
payment of any other sums provided in this Agreement, interest, compounded daily, on any amount remaining unpaid from the date
payment is required under Section 3, 4 or 5, as appropriate, until paid to the Employee, at the prime rate published daily in the
Wall Street Journal, each change in such rate to take effect on the effective date of the change in such prime rate.
(b) It is the intent of the parties hereto that the Employee not be required to incur any expenses associated with the
enforcement of his/her rights under this Agreement by arbitration, litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, the
Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for
all expenses (including all attorneys’ fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the
Company under this Agreement.
7. No Mitigation. The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this
Agreement by seeking other employment or otherwise.
8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Employee’s continuing or future participation
in or rights under any benefit, bonus, incentive or other plan or program provided by BMBC, the Company or any of its
Subsidiaries or Affiliates and for which the Employee may qualify; provided, however, that if the Employee becomes entitled to and
receives all of the payments provided for in this Agreement, the Employee agrees to waive his/her right to receive payments under
any severance plan or program applicable to all employees of the Company.
9. No Set-Off. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the Employee or others and the Company hereby agrees
not to exercise any such rights with respect to payment due the Employee pursuant to this Agreement.
10. Certain Reduction of Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined as set forth herein
that any payment or distribution by the Company to or for the benefit of the Employee, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would constitute an “excess parachute payment”
within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and that it would be
economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments
under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as
“Agreement Payments”) shall be reduced (but not below zero) to the Reduced Amount. The “Reduced Amount” shall be an
amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any
Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 10, present value shall be
determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations to be made under this Section 10 shall be made, in writing, by KPMG LLP, or the Company’s
independent certified public accountant immediately prior to the Change of Control, if other than KPMG LLP, (the “Accounting
Firm”), which firm shall provide its determinations and any supporting calculations in writing to both the Company and the
Employee within ten (10) days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the
Company and the Employee. The Employee shall in his or her sole discretion determine which and how much of the Agreement
Payments shall be eliminated or reduced consistent with the requirements of this Section 10, which determination
shall be made by delivery of written notice to the Company within 10 days of Employee’s receipt of the determination of the
Accounting Firm. Within five (5) days after the Employee’s timely determination, the Company shall pay (or cause to be paid) or
distribute (or cause to be distributed) to or for the benefit of the Employee, such amounts as are then due to the Employee under
this Agreement. In the event Employee does not make such timely determination then within 15 days after Company’s receipt of
the determination of the Accounting Firm, the Company in its sole discretion may pay (or cause to be paid) or distribute (or cause
to be distributed) to or for the benefit of the Employee such portion of the Agreement Payments as it may deem appropriate, but
no less than the Reduced Amount.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company
which should not have been made (“Overpayment”) or that additional Agreement Payments which have not been made by the
Company could have been made (“Underpayment”), in each case, consistent with the calculations required to be made hereunder.
Within two (2) years after the Separation from Service, the Accounting Firm shall review the determination made by it pursuant to
the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together
with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the “Federal Rate”); provided,
however, that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce
the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the
Employee together with interest thereon at the Federal Rate.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in paragraphs
(b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting
Firm of and from any and all claims, damages and expenses of any nature resulting from or relating to its determinations pursuant to
paragraphs (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of
the Accounting Firm.
11. Settlement of All Disputes.
(a) The Employee and the Company acknowledge that the Compensation Committee of the Company’s Board intends
to review and approve a schedule indicating a method of calculating certain payments to be made to the Employee hereunder in the
event of a Termination upon a Change of Control. In the event that the compensation plans referred to herein change prior to a
Change of Control, the Compensation Committee of the Company’s Board may, prior to such Change of Control, revise the
schedule to reflect such changes. The method of calculation set forth on such schedule, as so revised prior to a Change of Control,
shall be followed by the parties hereto unless manifestly unfair to the Employee.
(b) In the event of any dispute, controversy or claim arising out of or relating to any provision of this Agreement or the
Employee’s Termination upon a Change of Control, the
Company shall appoint as the sole and exclusive arbiter of such dispute, controversy or claim, a committee composed of two
persons who were members of the Company’s Board at any time within five (5) years prior to the Change of Control (which
persons may, but need not be, directors of the Company at the time of such dispute, controversy or claim); provided, however,
that no person shall be eligible to serve thereon who (i) is at the Termination Date, or shall have been at any time within one year
prior thereto, an executive officer of the Company, or (ii) shall be or have been at any time related in any manner to or otherwise
affiliated with, or was first nominated by, the corporation, Person or group whose acquisition of shares of Common Stock of
BMBC has given rise to a Change of Control. The decision of such committee and the award of any monetary judgment or other
relief by such committee shall be final and binding upon the Employee and the Company, and shall not be subject to appeal.
Judgment may be entered upon the decision and award of such committee by the Employee or the Company in any court of
competent jurisdiction. The Company shall pay the persons selected pursuant to this subsection a reasonable fee for their services,
and shall reimburse such persons for their expenses incurred in this capacity. In addition, the Company shall, to the maximum extent
permitted by law, indemnify and hold harmless such persons of and from any and all claims, damages or expenses of any nature
whatsoever relating to or arising from their activities in this capacity.
(c) In the event that the Company shall be unable to appoint the committee referred to in paragraph (b) above after good
faith efforts to do so, or in the event that such committee cannot reach a unanimous agreement, any remaining dispute, controversy
or claim arising out of or relating to any provision of this Agreement or the Employee’s Termination upon a Change of Control shall
be settled by arbitration in the City of Philadelphia, in accordance with the commercial arbitration rules then in effect of the
American Arbitration Association, before a panel of three (3) arbitrators, two (2) of whom shall be selected by the Company and
the Employee, respectively, and the third of whom shall be selected by the other two arbitrators. Each arbitrator selected as
provided herein is required to be or have been a director or an executive officer of a corporation whose shares of common stock
were listed during at least one year of such service on the New York Stock Exchange or the American Stock Exchange or quoted
on the National Association of Securities Dealers Automated Quotations System. Any award entered by the arbitrators shall be
entered thereon by any party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision
shall be specifically enforceable. The fees of the American Arbitration Association and the arbitrators and any expenses relating to
the conduct of the arbitration shall be paid by the Company.
(d) The party or parties challenging the right of the Employee to the benefits of this Agreement shall in all circumstances
have the burden of proof.
12. Term of Agreement. The term of this Agreement shall be for [_____ (_) years] from the date hereof and shall
automatically be extended for additional one-year periods unless written notice of termination of this Agreement is provided to the
Employee by the Company at least one year prior to the expiration of the initial [_____ (_) year] term or any one-year renewal
period; provided, however, that (i) after a Change of Control during the term of this Agreement, this Agreement shall remain in
effect for a period of two (2) years and until all of the obligations of the parties hereunder are satisfied or have expired, and (ii) this
Agreement shall terminate if,
prior to the Change of Control, the employment of the Employee with the Company or any of its Subsidiaries shall terminate for
any reason whatsoever.
13. Successor Company. The Company shall require any Person who acquires the majority of the Common Stock of the
Company or BMBC or any successor or successors thereof (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the Company or BMBC, by agreement, in form and substance
satisfactory to the Employee, to acknowledge expressly, in writing, that this Agreement is binding upon and enforceable against the
Company or BMBC or any successor or successors thereto in accordance with the terms hereof and the instrument of transfer,
and to become jointly and severally obligated with the Company to perform this Agreement, in the same manner and to the same
extent that the Company would be required to perform this Agreement if no such acquisition purchaser, merger consolidation,
succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore
defined and any such successor or successors to its business and/or assets, jointly and severally.
14. Notice. All notices and other communications required or permitted hereunder or necessary or convenient in connection
herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or
by overnight express courier service, as follows:
If to the Company, to:
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, PA 19010
Attention: General Counsel
If to the Employee, to:
[NAME]
[ADDRESS]
[ADDRESS]
or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other
party hereto in the manner specified in this Section, or, in the case of Employee, to such other address listed as the residential
address of Employee in the corporate records of the Company. Any such notice shall be deemed delivered and effective when
received in the case of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in the case of
registered or certified mail, or on the next business day in the case of overnight express courier service.
15. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of
Pennsylvania without giving effect to any conflict of laws provisions that would apply the law of a different jurisdiction.
16. Contents of Agreement, Amendment and Assignment.
(a) This Agreement sets forth the entire understanding between the parties hereto and supersedes all prior and
contemporaneous agreements with respect to the subject matter hereof[[, including, without limitation, the provisions of Section [_]
of the employment letter agreement [of even date herewith] between the [__________ and Employee] (the “Employment
Agreement”) as they would apply in the event of a Change of Control. For purposes of clarity, any payments made to Employee
pursuant to the provisions of this Agreement shall be made instead of, and not in addition to, payments that would otherwise be
made pursuant to Section [__] of the Employment Agreement.]] This Agreement cannot be changed, modified, extended or
terminated except upon written amendment executed by the Employee and approved by the Board and executed on the
Company’s behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under
certain compensation or bonus plans (including without limitation the AIP and Stock Plan) under circumstances where such plans
would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall
supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with
this Agreement without further action by the Company or the Boards of BMBC or the Company.
(b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the
Company.
(c) The Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee
manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or
oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for
general guidance. No policies, procedures or statements of any nature by or on behalf of the Company (whether written or oral,
and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any
nature, shall be construed to modify this Agreement.
(d) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of
the Employee and the Company hereunder shall not be assignable in whole or in part by the Company.
17. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be
determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of
this Agreement which can be given effect without the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver. No right conferred upon the Employee by this Agreement is intended to be exclusive
of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right
or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any
right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including without limitation
any delay by the Employee in
delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had
resigned, have constituted a Termination upon a Change of Control pursuant to Section 1(n)(ii) of this Agreement.
19. Compliance with Section 409(A) of the Code. This Agreement is intended to comply with the provisions of Section 409A
of the Code and shall be interpreted to be consistent with Section 409A of the Code.
20. Miscellaneous. All section headings in this Agreement are for convenience only. This Agreement may be executed in
several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
Signature Page Follows
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first
above written.
THE BRYN MAWR TRUST COMPANY
By: _______________________________
Name: Francis J. Leto
Title: President and Chief Executive Officer
EMPLOYEE:
__________________________________
[NAME]
(Back To Top)
Section 5: EX-10.47 (EXHIBIT 10.47)
BRYN MAWR BANK CORPORATION
RESTRICTED STOCK UNIT AGREEMENT FOR EMPLOYEES
(TIME-BASED CLIFF VESTING)
SUBJECT TO THE AMENDED AND RESTATED 2010 LONG TERM INCENTIVE PLAN
Grantee: [__________]
Date of Grant: [__________]
Number of RSUs: [__________]
Vesting Date:
[__________]
RESTRICTED STOCK UNIT AGREEMENT (“Agreement”), dated as of the Date of Grant set forth above by and between BRYN MAWR
BANK CORPORATION (the “Corporation”) and the Grantee named above (the “Grantee”).
1. The Plan. This Agreement is subject to the terms and conditions of the Amended and Restated Bryn Mawr Bank Corporation 2010
Long Term Incentive Plan (the “Plan”) as approved by the Board of Directors of the Corporation on February 27, 2015 and by the Corporation’s
shareholders on April 30, 2015. Except as otherwise specified herein, all capitalized terms used in this Agreement shall have the meanings given to
them in the Plan. The term “Company Group” as used in this Agreement with reference to employment shall include employment with the
Corporation or any of its direct or indirect subsidiaries.
2. Grant of Restricted Stock Units.
a. Subject to the terms and conditions of the Plan and this Agreement, and the Grantee’s acceptance of same by execution of
this Agreement, the Corporation’s Management Development and Compensation Committee (“Compensation Committee”) hereby grants to the
Grantee the number of Restricted Stock Units set forth above (the “RSUs”).
issue stock representing the shares underlying the vested RSUs to be issued to Grantee as soon as practicable.
b. Upon vesting of the RSUs and satisfaction of all of the other terms and conditions in this Agreement, the Corporation will
3. Terms and Conditions. The Grant is subject to the following terms and conditions:
a. Restricted (Vesting) Period. Vesting of the RSUs is subject to the completion of continued service by the Grantee from the
Date of Grant through [_________] (such date, the “Vesting Date” and such period, the “Vesting Period”). The RSUs will vest upon expiration of
the Vesting Period, but only if the Grantee remains continuously employed by the Corporation through the end of the Vesting Period or as
otherwise provided herein.
b. No Rights as a Shareholder. Prior to the Vesting Date, Grantee will have none of the rights and privileges of a shareholder
with respect to the shares underlying the RSUs, including but not limited to, the right to vote the shares until such RSU’s have vested and such
shares have been issued.
c. Dividend-Equivalents. At the time of issuance of shares underlying vested RSUs pursuant to subsection 2(b) above, the
Company Group shall also pay to Grantee an amount equal to the aggregate amount of all dividends declared and paid by the Company Group
based on dividend record dates falling between the Date of Grant and the date of issuance in accordance with the number of shares issued. The
dividend-equivalents will be reported to the employee as W-2 wages and, as such, will be subject to statutory withholding requirements for federal,
state and local taxes.
4. Forfeiture.
a. Forfeiture. All RSUs that have not vested at the Vesting Date in accordance with subsection 3(a) shall be forfeited in their
entirety.
b. Forfeiture of Unvested RSUs and Payment to the Corporation for Issued Shares Resulting from Vested RSUs If Grantee
Engages in Certain Activities. The provisions of this subsection 4(b) will apply to all RSUs granted to Grantee under the Plan and to any shares
issued to the Grantee upon vesting of RSUs. If, at any time during the Vesting Period, or for a period of two (2) years after termination of Grantee’s
employment for any reason, Grantee engages in any activity inimical, contrary or harmful to the interests of the Company Group including, but not
limited to (A) conduct related to Grantee’s employment for which either criminal or civil penalties against Grantee may be brought, (B) violation of
the Company Group’s policies including, without limitation, the Corporation’s Insider Trading Policy, Code of Business Conduct and Ethics, Code
of Personal Conduct, Employee Handbook, or otherwise, (C) soliciting of any customer of the Company Group for business which would result in
such customer terminating their relationship with the Company Group, (D) soliciting or inducing any individual who is an employee or director of
the Company Group to leave the Company Group or otherwise terminate their relationship with the Company Group, (E) disclosing or using any
confidential information or material concerning the Company Group, (F) breach of any agreement between the Grantee and the Company Group, or
(G) participating in a hostile takeover attempt, then (x) all RSUs that have not vested effective as of the date on which Grantee engages in such
activity, unless forfeited sooner by operation of another term or condition of this Agreement or the Plan, shall be forfeited in their entirety, and
(y) for any shares underlying vested RSUs which have been issued to Grantee, the Grantee shall pay to the Corporation the market value of the
shares on the date of issuance or the date Grantee engages in such activity, whichever is greater. The term “Confidential Information” as used in
this Agreement includes, but is not limited to, records, documents, programs, technical data, information technology, policies, files, lists, client non-
public personal information, pricing, costs, strategies, market data, statistics, business partners, customers, customer requirements, prospective
customer contacts, knowledge of the Company Group’s clients, methods of operation, processes, trade secrets, methods of determination of prices,
fees, financial condition, profits, sales, net income, indebtedness, potential mergers or acquisitions, or the sale of Company Group assets or
subsidiaries, commercial contracts and relationships, employees, litigation (whether actual or threatened), information acquired in connection with
the Grantee’s employment with the Company Group, including without limitation, proprietary or confidential information of any third party who may
disclose such information to the Company Group or the Grantee in the course of Company Group business, and any other information relating to
the Company Group that has not been made available to the general public, as the same may exist from time to time. The provisions of this Section 4
are in addition to, and in no way decrease, limit, or affect the applicability of or relief available to the Corporation under Section 8.
c. Right of Setoff. By accepting this Agreement, Grantee consents to the deduction, to the extent permitted by law, from any
amounts that the Company Group owes Grantee from time to time (including amounts owed to Grantee as wages or other compensation, fringe
benefits, or paid time-off pay, as well as any other amounts owed to Grantee by the Company Group), the amounts Grantee owes the Corporation
under subsection 4(b) above. Whether or not the Corporation elects to make any setoff in whole or in part, if the Corporation does not recover by
means of setoff the full amount Grantee owes it, calculated as set forth above, Grantee agrees to immediately pay the unpaid balance to the
Corporation.
d. Compensation Committee Discretion. Grantee may be released from Grantee’s obligations under subsections 4(b) and 4(c)
only if the Compensation Committee, or its duly appointed agent, determines in its sole discretion that such action is in the best interest of the
Corporation.
5. Death, Disability or Retirement. In the event the Grantee shall cease to be employed by the Company Group by reason of: (a) normal or
late retirement; (b) with the consent of the Compensation Committee, early retirement or a transfer of the Grantee in a spinoff; (c) death; or (d) total
and permanent disability as determined by the Compensation Committee (“Disability”), then the vesting requirements on a fraction of Grantee’s
RSUs will be deemed to have been fulfilled. The vested portion shall be calculated as follows: the number of RSUs granted multiplied by a fraction,
the numerator of which is the number of full calendar months that have elapsed in the Vesting Period prior to the death, Disability, Retirement, or
transfer in a spinoff of the Grantee and the denominator of which is the total number of full calendar months in the Vesting Period. Any remaining
RSUs which have not vested as provided
in this section 5 shall be forfeited. The terms of subsection 2(b) shall apply to the RSUs which vest as provided in this section 5.
6. Termination. If the Grantee terminates the Grantee’s employment with the Company Group or if the Company Group terminates the
Grantee’s employment with or without Cause, other than as described in section 5 above, any RSUs that have not yet vested at the date of
termination shall automatically be forfeited.
7. Change of Control. In the event of a Change of Control, Grantee’s outstanding RSUs will be deemed to have vested and any shares
underlying such RSUs not previously issued shall be issued within ten days after the Change of Control. A “Change of Control” shall be deemed to
have taken place if (i) any Person other than an entity in the Company Group, an employee benefit plan of the Company Group (or any Person
organized, appointed or established by the Company Group for or pursuant to the terms of any such employee benefit plan), together with all
affiliates and associates of such Person, becomes the beneficial owner in the aggregate of 25% or more of the common stock of the Corporation
then outstanding, or (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board of Directors
of the Corporation or The Bryn Mawr Trust Company (the “Bank”) cease, for any reason, to constitute a majority thereof, unless the election, or the
nomination for election by the Corporation or the Bank’s shareholders, as the case may be, of each director who was not a director at the beginning
of such period was approved by a vote of at least two-thirds of the directors in office at the time of such election or nomination, who were directors
at the beginning of such period.
8. Non-Interference and Non-Solicitation.
a. For a period of twenty-four (24) months following the date Grantee ceases to be employed by the Company Group for any
reason, whether voluntarily or involuntarily (the “Separation Date”), Grantee agrees not to disrupt, damage, impair or interfere with the business of
the Company Group in any manner, including without limitation, by: (a) employing, engaging or soliciting any employee of the Company Group; (b)
inducing or attempting to influence an employee to leave the employ of the Company Group; (c) adversely influencing or altering the relationship of
any person, firm, corporation, partnership, association or other entity (“Person”) with the Company Group, whether such Person is an employee,
customer, client or otherwise; or (d) directly or indirectly, individually or for any other, calling on, engaging in business with, soliciting, inducing, or
attempting to solicit or induce, any Person who has been a customer, client or business referral source of the Company Group, or who has been
solicited as a potential customer, client or business referral source of the Company Group, during the two (2) year period preceding the Separation
Date to (x) cease doing business in whole or in part with or through the Company Group or (y) do business with any other Person which performs
services or offers products materially similar to or competitive with those provided by the Company Group.
b. Grantee shall maintain confidential information (as defined in Section 4(b)) in the strictest of confidence, shall not disclose
confidential information to any person outside of the Company Group, and shall not use, reproduce, disseminate, or take any other action with
respect to confidential information other than in connection with Grantee’s employment and for the benefit of the Company Group. Grantee shall not
remove confidential information from Company Group premises unless necessary in connection with the performance of Grantee’s job duties, and in
such event, such confidential information shall be returned or destroyed immediately upon cessation of Grantee’s employment with the Company
Group. The obligations of Grantee under this Section 8(b) shall apply during Grantee’s employment and following termination of Grantee’s
employment, and shall survive in perpetuity.
c. Grantee acknowledges and agrees that the restrictions contained in this section 8 are reasonable and necessary in order to
protect the legitimate interests of the Company Group and that any violation thereof would result in irreparable injury to the Company Group.
Consequently, Grantee acknowledges and agrees that, in the event of any violation thereof, the Company Group shall be authorized and entitled,
without the necessity of posting a bond or other form of security, to obtain from any court of competent jurisdiction injunctive and equitable relief,
as well as an equitable accounting of all profits and benefits arising out of such violation, which rights and remedies shall be cumulative and in
addition to any other rights or remedies to which the Company Group may be entitled at law or in equity (including the rights of forfeiture set forth
in section 4 hereof) and, in the event the Company Group is required to enforce the terms of this Agreement through court proceedings, the
Company Group shall be entitled to reimbursement
of all legal fees, costs and expenses incident to enforcement of any such term, in whole or in part and/or such term as may be modified by a court of
competent jurisdiction.
d. The provisions of this Section 8 are in addition to, and in no way decrease, limit, or affect the applicability of or relief
available to the Corporation under Section 4.
e. If any court of competent jurisdiction construes any of the restrictive covenants set forth in this Section 8, or any part
thereof, to be unenforceable because of the duration, scope or geographic area covered thereby, such court shall have the power to reduce the
duration, scope or geographic area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.
9. Change Adjustments. The Compensation Committee shall make appropriate adjustments to give effect to adjustments made in the
number of shares of the Corporation’s common stock through a merger, consolidation, recapitalization, reclassification, combination, spinoff,
common stock dividend, stock split or other relevant change as the Compensation Committee deems appropriate to prevent dilution or enlargement
of the rights of the Grantee. Any adjustments or substitutions pursuant to this section shall meet the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and shall be final and binding upon the Grantee.
10. Compliance with Law and Regulations. The grant of RSUs and the issuance of shares underlying vested RSUs shall be subject to all
applicable federal and state laws, the rules and regulations and to such approvals by any government or regulatory agency as may be required. The
Corporation shall not be required to register any securities pursuant to the Securities Act of 1933, as amended, or to list such shares under the stock
market or exchange on which the common stock of the Corporation may then be listed, or to take any other affirmative action in order to cause the
issuance or delivery of shares underlying vested RSUs to comply with any law or regulation of any governmental authority.
11. Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be
delivered personally or by mail, postage prepaid, addressed as follows: to the Corporation, Attention: Corporate Secretary, at its office at 801
Lancaster Avenue, Bryn Mawr, PA 19010 or to the Grantee at her/his address on the records of the Corporation or at such other addresses as the
Corporation, or Grantee, may designate in writing from time to time to the other party hereto.
12. Employment. Neither the action of the Corporation or its shareholders, nor any action taken by the Compensation Committee under
the Plan nor any provisions of this Agreement shall be construed as giving to the Grantee the right to be retained as an employee of the Company
Group.
13. Payment of Taxes. Upon issuance of shares underlying the vested RSUs the value of the shares issued, calculated based on the
closing price of the Corporation’s common stock on the day preceding the Vesting Date, will constitute W-2 wages to the Grantee and, as such, will
be subject to statutory federal, state and local withholding taxes. The Corporation will withhold a sufficient number of whole shares in order to
satisfy this tax obligation. The remaining shares will be made available to the Grantee as soon as practicable. The value of any fractional shares will
be paid to the Grantee through a separate disbursement.
14. Incorporation by Reference. This Restricted Stock Unit Award is granted pursuant and subject to the terms and conditions of the
Plan, the provisions of which are incorporated herein by reference. If any provision of this Agreement conflicts with any provision of the Plan in
effect on the Date of Grant, the terms of the Plan shall control. This Agreement shall not be modified after the Date of Grant except by written
agreement between the Corporation and the Grantee; provided, however, that such modification shall (a) not be inconsistent with the Plan, and
(b) be approved by the Committee.
15. Reformation; Severability. If any provision of this Agreement shall hereafter be held to be invalid, unenforceable or illegal, in whole
or in part, by a court of competent jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum extent
necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the benefits of
the parties provided
by, this Agreement or (ii) if such provision cannot be so reformed, such provision shall be severed from this Agreement or the Notice and an
equitable adjustment shall be made to this Agreement (including, without limitation, addition of necessary further provisions) so as to give effect to
the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity, enforceability or legality of such
provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or severance shall affect the
legality, validity or enforceability of any other provision of this Agreement.
16. Compliance with Internal Revenue Code Section 409A. It is the intention of the parties that the RSUs and the Agreement comply
with the provisions of Section 409A of the Code to the extent, if any, that such provisions are applicable to the Agreement and the Agreement will
be administered by the Compensation Committee in a manner consistent with this intent. If any payments or benefits may be subject to taxation
under Section 409A of the Code, Grantee agrees that the Compensation Committee may, without the consent of Grantee, modify this Agreement to
the extent and in the manner that the Compensation Committee deems necessary or advisable or take any other action or actions, including an
amendment or action with retroactive effect that the Compensation Committee determines is necessary or appropriate to exempt any payments or
benefits from the application of Section 409A or to provide such payments or benefits in the manner that complies with the provisions of Section
409A such that they will not be taxable thereunder.
17. Choice of Law. The provisions of this Agreement shall be construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to any conflict of law provision that would apply the law of another jurisdiction.
18. Interpretation. The interpretation and construction or any terms or conditions of the Plan or this Agreement by the Compensation
Committee shall be final and conclusive.
Signature Page Follows
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by a duly authorized officer, and the Grantee has
hereunto set his/her hand and seal, effective as of the Date of Grant set forth above.
BRYN MAWR BANK CORPORATION
By:
Name:
Title:
Michael W. Harrington
Chief Financial Officer
(Signature of Grantee)
(Print Name of Grantee)
(Address of Grantee)
(Back To Top)
Section 6: EX-10.48 (EXHIBIT 10.48)
BRYN MAWR BANK CORPORATION
RESTRICTED STOCK UNIT AGREEMENT
(PERFORMANCE-BASED CLIFF VESTING)
SUBJECT TO THE AMENDED AND RESTATED 2010 LONG TERM INCENTIVE PLAN
Grantee:
Date of Grant:
Number of RSUs:
Vesting Period:
Performance Goal:
Certain conditions and goals as determined according to Exhibit A hereto
RESTRICTED STOCK UNIT AGREEMENT (“Agreement”), dated as of the Date of Grant set forth above by and between BRYN MAWR
BANK CORPORATION (the “Corporation”) and the Grantee named above (the “Grantee”).
1. The Plan. This Agreement is subject to the terms and conditions of the Amended and Restated Bryn Mawr Bank Corporation 2010
Long Term Incentive Plan (the “Plan”) as approved by the Board of Directors of the Corporation on February 27, 2015 and by the Corporation’s
shareholders on April 30, 2015. Except as otherwise specified herein, all capitalized terms used in this Agreement shall have the meanings given to
them in the Plan. The term “Company Group” as used in this Agreement with reference to employment shall include employment with the
Corporation or any of its direct or indirect subsidiaries.
2. Grant of Restricted Stock Units.
a. Subject to the terms and conditions of the Plan and this Agreement, and the Grantee’s acceptance of same by execution of
this Agreement, the Corporation’s Management Development and Compensation Committee (“Compensation Committee”) hereby grants to the
Grantee the number of Restricted Stock Units set forth above (the “RSUs”).
b. Upon vesting of the RSUs and satisfaction of all of the other terms and conditions in this Agreement, the Corporation will
issue stock representing the shares underlying the vested RSUs as soon as practicable following the Vesting Date (as defined in subsection 3(a)
below).
3. Terms and Conditions. The Grant is subject to the following terms and conditions:
a. Restricted Period and Performance Goals. Vesting of the RSUs is subject to the achievement of the performance goals set
forth in Exhibit A (the “Performance Goals”) and shall vest, in whole or in part in accordance with the weighting and thresholds set forth in Exhibit
A, upon the Vesting Date only if the Performance Goals are achieved and the Grantee has remained continuously employed by the Company Group
from the Date of Grant through __________________ (the “Vesting Period”) or as otherwise provided herein. The Compensation Committee shall
determine within 75 days after the last day of the Vesting Period whether the Performance Goals have been achieved, in whole or in part, in
accordance with Exhibit A attached hereto. The value of any fractional shares will be paid to the Grantee through a separate disbursement. No
vesting of RSUs shall be deemed to have occurred unless and until the Compensation Committee certifies in writing as to the portion of the
Performance Goals that have been achieved. The date on which the Compensation Committee certifies as to the achievement of the Performance
Goals and the vesting of the RSUs is referred to in this Agreement as the “Vesting Date”.
b. No Rights as a Shareholder. Grantee will have none of the rights and privileges of a shareholder with respect to the shares
underlying the RSUs, including but not limited to, the right to vote the shares until such RSU’s have vested and such shares have been issued.
c. Dividend-Equivalents. At the time of issuance of shares underlying vested RSUs pursuant to subsection 2(b) above, the
Company Group shall also pay to Grantee an amount equal to the aggregate amount of all dividends declared and paid by the Company Group
based on dividend record dates falling between the Date of Grant and the date of issuance in accordance with the number of shares issued. The
dividend-equivalents will be reported to the employee as W-2 wages and, as such, will be subject to statutory withholding requirements for federal,
state and local taxes. The computation set forth in this subparagraph is separate and distinct from the calculations and concepts set forth on Exhibit
“A” hereto and the calculations and concepts set forth on Exhibit “A” hereto have no applicability to the calculation of the amount of dividends to
be paid by the Corporation pursuant to this subparagraph.
4. Forfeiture.
a. Forfeiture. All RSUs that have not vested at the Vesting Date in accordance with subsection 3(a) and Exhibit A attached
hereto shall be forfeited in their entirety.
b. Forfeiture of Unvested RSUs and Payment to the Corporation for Issued Shares Resulting from Vested RSUs If Grantee
Engages in Certain Activities. The provisions of this subsection 4(b) will apply to all RSUs granted to Grantee under the Plan and to any shares
issued to the Grantee upon vesting of RSUs. If, at any time during the Vesting Period, or for a period of two (2) years after termination of Grantee’s
employment for any reason, Grantee engages in any activity inimical, contrary or harmful to the interests of the Company Group including, but not
limited to (A) conduct related to Grantee’s employment for which either criminal or civil penalties against Grantee may be brought, (B) violation of
the Company Group’s policies including, without limitation, the Corporation’s Insider Trading Policy, Code of Business Conduct and Ethics, Code
of Personal Conduct, Employee Handbook, or otherwise, (C) soliciting of any customer of the Company Group for business which would result in
such customer terminating their relationship with the Company Group, (D) soliciting or inducing any individual who is an employee or director of
the Company Group to leave the Company Group or otherwise terminate their relationship with the Company Group, (E) disclosing or using any
confidential information or material concerning the Company Group, (F) breach of any agreement between the Grantee and the Company Group, or
(G) participating in a hostile takeover attempt, then (x) all RSUs that have not vested effective as of the date on which Grantee engages in such
activity, unless forfeited sooner by operation of another term or condition of this Agreement or the Plan, shall be forfeited in their entirety, and
(y) for any shares underlying vested RSUs which have been issued to Grantee, the Grantee shall pay to the Corporation the market value of the
shares on the date of issuance or the date Grantee engages in such activity, whichever is greater. The term “Confidential Information” as used in
this Agreement includes, but is not limited to, records, documents, programs, technical data, information technology, policies, files, lists, client non-
public personal information, pricing, costs, strategies, market data, statistics, business partners, customers, customer requirements, prospective
customer contacts, knowledge of the Company Group’s clients, methods of operation, processes, trade secrets, methods of determination of prices,
fees, financial condition, profits, sales, net income, indebtedness, potential mergers or acquisitions, or the sale of Company Group assets or
subsidiaries, commercial contracts and relationships, employees, litigation (whether actual or threatened), information acquired in connection with
the Grantee’s employment with the Company Group, including without limitation, proprietary or confidential information of any third party who may
disclose such information to the Company Group or the Grantee in the course of Company Group business, and any other information relating to
the Company Group that has not been made available to the general public, as the same may exist from time to time. The provisions of this Section 4
are in addition to, and in no way decrease, limit, or affect the applicability of or relief available to the Corporation under Section 8.
c. Right of Setoff. By accepting this Agreement, Grantee consents to the deduction, to the extent permitted by law, from any
amounts that the Company Group owes Grantee from time to time (including amounts owed to Grantee as wages or other compensation, fringe
benefits, or paid time-off pay, as well as any other amounts owed to Grantee by the Company Group), the amounts Grantee owes the Corporation
under subsection 4(b) above. Whether or not the Corporation elects to make any setoff in whole or in part, if the Corporation does not recover by
means of setoff the full amount Grantee owes it, calculated as set forth above, Grantee agrees to immediately pay the unpaid balance to the
Corporation.
d. Compensation Committee Discretion. Grantee may be released from Grantee’s obligations under subsections 4(b) and 4(c)
only if the Compensation Committee, or its duly appointed agent, determines in its sole discretion that such action is in the best interest of the
Corporation.
5. Death, Disability or Retirement. In the event the Grantee shall cease to be employed by the Company Group by reason of: (a)
retirement approved by the Compensation Committee (“Retirement”); (b) a transfer of the Grantee in a spinoff; (c) death; or (d) total and permanent
disability as determined by the Compensation Committee (“Disability”), then the vesting requirements on a fraction of Grantee’s RSUs will be
deemed to have been fulfilled. The vested portion shall be calculated as follows: the number of RSUs that would have vested in accordance with
subsection 3(a) had Grantee remained employed through the Vesting Period, multiplied by a fraction, the numerator of which is the number of full
calendar months that elapsed in the Vesting Period prior to the death, Disability, Retirement or transfer in a spinoff of the Grantee and the
denominator of which is the total number of full calendar months in the Vesting Period. Shares underlying the RSUs that vest in accordance with the
terms of this Section 5 shall be issued as soon as practicable following the Vesting Date. Any remaining RSUs which have not vested as provided
in this Section 5 shall be forfeited.
6. Termination. If the Grantee terminates the Grantee’s employment with the Company Group or if the Company Group terminates the
Grantee’s employment with or without Cause, other than as described in Section 5 above, any RSUs that have not yet vested at the date of
termination shall automatically be forfeited.
7. Change of Control. In the event of a Change of Control, Grantee’s outstanding RSUs will be deemed to have vested and any shares
underlying such RSUs not previously issued shall be issued within ten days after the Change of Control. For purposes of clarification, in such a
situation, all RSUs will vest at the target levels as described in Exhibit A hereto. A “Change of Control” shall be deemed to have taken place if (i)
any Person (as defined in subsection 8(a) below) other than an entity in the Company Group or an employee benefit plan of the Company Group (or
any Person organized, appointed or established by the Company Group for or pursuant to the terms of any such employee benefit plan), together
with all affiliates and associates of such Person, becomes the beneficial owner in the aggregate of 25% or more of the common stock of the
Corporation then outstanding, or (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board
of Directors of the Corporation or The Bryn Mawr Trust Company (the “Bank”) cease, for any reason, to constitute a majority thereof, unless the
election, or the nomination for election by the Corporation or the Bank’s shareholders, as the case may be, of each director who was not a director
at the beginning of such period was approved by a vote of at least two-thirds of the directors in office at the time of such election or nomination,
who were directors at the beginning of such period.
8. Non-Interference and Non-Solicitation.
a. For a period of ________________ months following the date Grantee ceases to be employed by the Company Group for
any reason, whether voluntarily or involuntarily (the “Separation Date”), Grantee agrees not to disrupt, damage, impair or interfere with the business
of the Company Group in any manner, including without limitation, by: (a) employing, engaging or soliciting any employee of the Company Group;
(b) inducing or attempting to influence an employee to leave the employ of the Company Group; (c) adversely influencing or altering the
relationship of any person, firm, corporation, partnership, association or other entity (“Person”) with the Company Group, whether such Person is
an employee, customer, client or otherwise; or (d) directly or indirectly, individually or for any other, calling on, engaging in business with,
soliciting, inducing, or attempting to solicit or induce, any Person who has been a customer, client or business referral source of the Company
Group, or who has been solicited as a potential customer, client or business referral source of the Company Group, during the two (2) year period
preceding the Separation Date to (x) cease doing business in whole or in part with or through the Company Group or (y) do business with any other
Person which performs services or offers products materially similar to or competitive with those provided by the Company Group.
b. Grantee shall maintain Confidential Information (as defined in subsection 4(b)) in the strictest of confidence, shall not
disclose confidential information to any person outside of the Company Group, and shall not use, reproduce, disseminate, or take any other action
with respect to confidential information other than in connection with Grantee’s employment and for the benefit of the Company Group. Grantee
shall not remove confidential information from Company Group premises unless necessary in connection with the performance of Grantee’s job
duties, and in such event, such confidential information shall be returned or destroyed immediately upon cessation of Grantee’s employment with
the Company Group. The obligations of Grantee under this Section 8(b) shall apply during Grantee’s employment and following termination of
Grantee’s employment, and shall survive in perpetuity.
c. Grantee acknowledges and agrees that the restrictions contained in this Section 8 are reasonable and necessary in order to
protect the legitimate interests of the Company Group and that any violation thereof would result in irreparable injury to the Company Group.
Consequently, Grantee acknowledges and agrees that, in the event of any violation thereof, the Company Group shall be authorized and entitled,
without the necessity of posting a bond or other form of security, to obtain from any court of competent jurisdiction injunctive and equitable relief,
as well as an equitable accounting of all profits and benefits arising out of such violation, which rights and remedies shall be cumulative and in
addition to any other rights or remedies to which the Company Group may be entitled at law or in equity (including the rights of forfeiture set forth
in Section 4 hereof) and, in the event the Company Group is required to enforce the terms of this Agreement through court proceedings, the
Company Group shall be entitled to reimbursement of all legal fees, costs and expenses incident to enforcement of any such term, in whole or in part
and/or such term as may be modified by a court of competent jurisdiction.
d. The provisions of this Section 8 are in addition to, and in no way decrease, limit, or affect the applicability of or relief
available to the Corporation under Section 4.
e. If any court of competent jurisdiction construes any of the restrictive covenants set forth in this Section 8, or any part
thereof, to be unenforceable because of the duration, scope or geographic area covered thereby, such court shall have the power to reduce the
duration, scope or geographic area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.
9. Change Adjustments. The Compensation Committee shall make appropriate adjustments to give effect to adjustments made in the
number of shares of the Corporation’s common stock through a merger, consolidation, recapitalization, reclassification, combination, spinoff,
common stock dividend, stock split or other relevant change as the Compensation Committee deems appropriate to prevent dilution or enlargement
of the rights of the Grantee. Any adjustments or substitutions pursuant to this section shall meet the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and shall be final and binding upon the Grantee.
10. Compliance with Law and Regulations. The grant of RSUs and the issuance of shares underlying vested RSUs shall be subject to all
applicable federal and state laws, the rules and regulations and to such approvals by any government or regulatory agency as may be required. The
Corporation shall not be required to register any securities pursuant to the Securities Act of 1933, as amended, or to list such shares under the stock
market or exchange on which the common stock of the Corporation may then be listed, or to take any other affirmative action in order to cause the
issuance or delivery of shares underlying vested RSUs to comply with any law or regulation of any governmental authority.
11. Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be
delivered personally or by mail, postage prepaid, addressed as follows: to the Corporation, Attention: Corporate Secretary, at its office at 801
Lancaster Avenue, Bryn Mawr, PA 19010 or to the Grantee at her/his address on the records of the Corporation or at such other addresses as the
Corporation, or Grantee, may designate in writing from time to time to the other party hereto.
12. Employment. Neither the action of the Corporation or its shareholders, nor any action taken by the Compensation Committee under
the Plan nor any provisions of this Agreement shall be construed as giving to the Grantee the right to be retained as an employee of the Company
Group.
13. Payment of Taxes. Upon issuance of shares underlying the vested RSUs the value of the shares issued, calculated based on the
closing price of the Corporation’s common stock on the day preceding the Vesting Date, will constitute W-2 wages to the Grantee and, as such, will
be subject to statutory federal, state and local withholding taxes. The Corporation will withhold a sufficient number of whole shares in order to
satisfy this tax obligation. The remaining shares will be made available to the Grantee as soon as practicable. The value of any fractional shares will
be paid to the Grantee through a separate disbursement.
14. Incorporation by Reference. This Restricted Stock Unit Award is granted pursuant and subject to the terms and conditions of the
Plan, the provisions of which are incorporated herein by reference. If any provision of this Agreement conflicts with any provision of the Plan in
effect on the Date of Grant, the terms of the Plan shall control. This Agreement shall not be modified after the Date of Grant except by written
agreement between the Corporation and the Grantee; provided, however, that such modification shall (a) not be inconsistent with the Plan, and
(b) be approved by the Committee.
15. Reformation; Severability. If any provision of this Agreement shall hereafter be held to be invalid, unenforceable or illegal, in whole
or in part, by a court of competent jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum extent
necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the benefits of
the parties provided by, this Agreement or (ii) if such provision cannot be so reformed, such provision shall be severed from this Agreement or the
Notice and an equitable adjustment shall be made to this Agreement (including, without limitation, addition of necessary further provisions) so as
to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity, enforceability or
legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or severance shall
affect the legality, validity or enforceability of any other provision of this Agreement.
16. Compliance with Internal Revenue Code Section 409A. It is the intention of the parties that the RSUs and the Agreement comply
with the provisions of Section 409A of the Code to the extent, if any, that such provisions are applicable to the Agreement and the Agreement will
be administered by the Compensation Committee in a manner consistent with this intent. If any payments or benefits may be subject to taxation
under Section 409A of the Code, Grantee agrees that the Compensation Committee may, without the consent of Grantee, modify this Agreement to
the extent and in the manner that the Compensation Committee deems necessary or advisable or take any other action or actions, including an
amendment or action with retroactive effect that the Compensation Committee determines is necessary or appropriate to exempt any payments or
benefits from the application of Section 409A or to provide such payments or benefits in the manner that complies with the provisions of Section
409A such that they will not be taxable thereunder.
17. Choice of Law. The provisions of this Agreement shall be construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to any conflict of law provision that would apply the law of another jurisdiction.
18. Interpretation. The interpretation and construction or any terms or conditions of the Plan or this Agreement by the Compensation
Committee shall be final and conclusive.
Signature Page Follows
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by a duly authorized officer, and the Grantee has
hereunto set his/her hand and seal, effective as of the Date of Grant set forth above.
BRYN MAWR BANK CORPORATION
By:
Name:
Title:
(Signature of Grantee)
(Print Name of Grantee)
(Address of Grantee)
TO RESTRICTED STOCK UNIT AGREEMENT DATED AS OF _____________________
EXHIBIT A
All of the terms and conditions of the Restricted Stock Unit Agreement dated as of ______________ (“Agreement”), to which this Exhibit is
attached are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the
Agreement.
Name of Grantee:
1. Target Number of Restricted Stock Units subject to vesting based on achievement of __________________________________________:
___
2. Target Number of Restricted Stock Units subject to vesting based on achievement of __________________________________________:
___
3. Target Number of Restricted Stock Units subject to vesting based on achievement of __________________________________________:
___
4. Target Number of Restricted Stock Units subject to vesting based on achievement of __________________________________________:
___
Weight
Measure
Baseline
Calculation
-----%
-----%
-----%
-----%
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Section 7: EX-21.1 (EXHIBIT 21.1)
Subsidiaries of the Registrant*
Exhibit 21.1
The Bryn Mawr Trust Company
*Excludes subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 2018
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Section 8: EX-23.1 (EXHIBIT 23.1)
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Bryn Mawr Bank Corporation:
We consent to the incorporation by reference in the registration statements on Form S-8 (No. 333-204547, No. 333-201642, No. 333-182435, No. 333-
168072, No. 333-144280, No. 333-143445, and No. 333-119958), in the registration statements on Form S-4 (No. 333-206866, No. 333-196916, No. 333-
163874, and No. 333-216995), and in the registration statements on Forms S-3 (No. 333-224849 and No. 333-177109) of Bryn Mawr Bank Corporation
of our report dated February 28, 2019, with respect to the consolidated balance sheets of Bryn Mawr Bank Corporation as of December 31, 2018 and
2017, 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, 2018, and the related notes (collectively, the “consolidated financial statements”), and the
effectiveness of internal control over financial reporting as of December 31, 2018, which report appears in the December 31, 2018 annual report on
Form 10-K of Bryn Mawr Bank Corporation.
(signed) KPMG LLP
Philadelphia, Pennsylvania
March 1, 2019
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Section 9: EX-31.1 (EXHIBIT 31.1)
Exhibit 31.1
I, Francis J. Leto, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Bryn Mawr Bank Corporation;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 28, 2019
/s/ Francis J. Leto
Francis J. Leto, Chief Executive Officer
(Principal Executive Officer)
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Section 10: EX-31.2 (EXHIBIT 31.2)
I, Michael W. Harrington, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Bryn Mawr Bank Corporation;
CERTIFICATIONS
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 28, 2019
/s/ Michael W. Harrington
Michael W. Harrington, Chief Financial Officer
(Principal Financial Officer)
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Section 11: EX-32.1 (EXHIBIT 32.1)
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of Bryn Mawr Bank Corporation (the “Corporation”) on Form 10-K for the period ended December 31, 2018,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Francis J. Leto, Chief Executive Officer of the
Corporation, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge
and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Corporation.
Date: February 28, 2019
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Section 12: EX-32.2 (EXHIBIT 32.2)
/s/ Francis J. Leto
Francis J. Leto, Chief Executive Officer
(Principal Executive Officer)
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the Annual Report of Bryn Mawr Bank Corporation (the “Corporation”) on Form 10-K for the period ended December 31, 2018,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael W. Harrington, Chief Financial Officer of the
Corporation, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge
and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Corporation.
Date: February 28, 2019
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/s/ Michael W. Harrington
Michael W. Harrington, Chief Financial Officer
(Principal Financial Officer)