<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934.
For Quarter ended September 30, 1997 Commission File Number 0-15261
------------------ -------
Bryn Mawr Bank Corporation
______________________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
------------------------------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
-------------------------------------------------------------------
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
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Former name, former address and fiscal year, if changed since last report.
Indicate by check whether the registrant (1) has filed all reports 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 that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at November 4, 1997
-----------------------
Common Stock, par value $1 2,189,309
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED September 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the Nine
Months Ended September 30, 1997 and 1996..........Page 1
Consolidated Statements of Income for the Three
Months Ended September 30, 1997 and 1996..........Page 2
Consolidated Balance Sheets as of September 30, 1997,
December 31, 1996 and September 30, 1996..........Page 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996..........Page 4
Notes to Consolidated Financial Statements.............Page 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...Page 10
PART II - OTHER INFORMATION................................Page 21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
-------- --------
<S> <C> <C>
Interest income:
Interest and fees on loans............................... $16,478 $16,009
Interest on federal funds sold........................... 720 190
Interest on interest bearing deposits with banks......... 7 2
Interest and dividends on investment securities:
U.S. Treasury securities................................ 573 1,142
U.S. Government Agency securities....................... 798 501
Obligations of states and political subdivisions........ 229 315
Dividend income......................................... 57 56
------- -------
Total interest income...................................... 18,862 18,215
Interest expense on deposits............................... 5,284 4,895
------- -------
Net interest income........................................ 13,578 13,320
Loan loss provision........................................ 150 275
------- -------
Net interest income after loan loss provision.............. 13,428 13,045
------- -------
Other income:
Fees for Trust services.................................. 5,675 4,416
Service charges on deposits.............................. 838 814
Other service charges, commissions and fees.............. 800 755
Net gain on sale of loans................................ 334 245
Net gain on sale of other real estate owned.............. 95 1,077
Other operating income................................... 609 722
------- -------
Total other income......................................... 8,351 8,029
------- -------
Other expenses:
Salaries and wages....................................... 7,448 6,412
Employee benefits........................................ 1,366 1,412
Occupancy and bank premises.............................. 1,012 1,165
Furniture, fixtures, and equipment....................... 1,159 893
Other operating expenses................................. 4,230 4,435
------- -------
Total other expenses....................................... 15,215 14,317
------- -------
Income before income taxes................................. 6,564 6,757
Applicable income taxes.................................... 2,176 2,226
------- -------
Net Income................................................. $ 4,388 $4,531
======= =======
Earnings per average common share:
Net income............................................. $1.91 $2.00
Cash dividends declared................................ $0.54 $0.77
Average number of shares outstanding
including common stock equivalents..................... 2,297,075 2,266,863
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Form 10-Q
Page 1
<PAGE>
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
September 30
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans......................... $ 5,640 $ 5,595
Interest on federal funds sold..................... 238 6
Interest on interest bearing deposits with banks... 1 0
Interest and dividends on investment securities:
U.S. Treasury securities.......................... 177 324
U.S. Government Agency Securities................. 342 167
Obligations of states and political subdivisions.. 68 95
Dividend income................................... 16 16
---------- ----------
Total interest income................................ 6,482 6,203
Interest expense on deposits......................... 1,826 1,624
---------- ----------
Net interest income.................................. 4,656 4,579
Loan loss provision.................................. 50 75
---------- ----------
Net interest income after loan loss provision........ 4,606 4,504
---------- ----------
Other income:
Fees for Trust services............................ 1,913 1,441
Service charges on deposits........................ 281 258
Other service charges, commissions and fees........ 291 239
Net gain on sale of loans.......................... 163 82
Net gain on sale of other real estate owned........ 1 2
Other operating income............................. 209 246
---------- ----------
Total other income................................... 2,858 2,268
---------- ----------
Other expenses:
Salaries and wages................................. 2,582 2,143
Employee benefits.................................. 459 352
Occupancy and bank premises........................ 326 378
Furniture, fixtures, and equipment................. 389 356
Other operating expenses........................... 1,397 1,298
---------- ----------
Total other expenses................................. 5,153 4,527
---------- ----------
Income before income taxes........................... 2,311 2,245
Applicable income taxes.............................. 771 746
---------- ----------
Net Income........................................... $ 1,540 $ 1,499
========== ==========
Earnings per average common share:
Net income....................................... $0.67 $0.66
Cash dividends declared.......................... $0.18 $0.15
Average number of shares outstanding
including common stock equivalent.................. 2,298,355 2,265,824
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Form 10-Q
Page 2
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
(Unaudited) (Unaudited)
------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks....................................... $ 22,809 $ 26,717 $ 24,289
Interest bearing deposits with banks.......................... 101 121 103
Federal funds sold............................................ 17,380 11,616 1,700
Investment securities available for sale, at market (amortized
cost of $40,557, $34,748 and $38,372 as of September 30, 1997,
December 31, 1996 and September 30, 1996, respectively)..... 40,631 34,747 38,372
Loans:
Consumer.................................................... 79,080 81,512 79,659
Commercial.................................................. 72,449 74,688 72,617
Real Estate................................................. 109,348 103,227 107,692
-------- -------- --------
Total loans............................................... 260,877 259,427 259,968
Less: Allowance for possible loan losses.................... (4,267) (4,182) (4,190)
-------- -------- --------
Net loans................................................. 256,610 255,245 255,778
-------- -------- --------
Premises and equipment, net................................... 11,561 11,334 11,540
Accrued interest receivable................................... 2,065 2,164 2,260
Other real estate owned....................................... 1,411 1,523 1,386
Other assets.................................................. 2,341 2,280 2,296
-------- -------- --------
Total assets.............................................. $354,909 $345,747 $337,724
======== ======== ========
Liabilities
Deposits:
Demand, noninterest-bearing................................. $ 74,772 $ 81,865 $ 77,757
Savings..................................................... 155,135 162,440 156,031
Time........................................................ 80,930 58,878 58,967
-------- -------- --------
Total deposits............................................ 310,837 303,183 292,755
-------- -------- --------
Borrowed funds................................................ 0 0 4,000
Other liabilities............................................. 5,896 6,756 6,419
-------- -------- --------
Total liabilities......................................... 316,733 309,939 303,174
-------- -------- --------
Shareholders' equity
Common stock, par value $1; authorized 5,000,000
shares; issued 2,510,585 shares as of September 30, 1997,
2,503,885 shares as of December 31, 1996 and 2,494,100
shares as of September 30, 1996; shares outstanding of 2,181,915 as of
September 30, 1997, 2,201,065 as of December 31, 1996 and
2,191,280 as of September 30, 1996......................... 2,511 2,504 2,494
Paid-in capital in excess of par value....................... 4,545 4,445 4,376
Unrealized investment appreciation
(depreciation) net of deferred income taxes................ 49 (1) 0
Retained earnings............................................ 33,598 30,399 29,219
-------- -------- --------
40,703 37,347 36,089
Less: Common stock in treasury at cost -- 328,670 shares as of
September 30, 1997 and 302,820 shares as of December 31, 1996
and September 30, 1996..................................... (2,527) (1,539) (1,539)
-------- -------- --------
Total shareholders' equity................................. 38,176 35,808 34,550
-------- -------- --------
Total liabilities and shareholders' equity................. $354,909 $345,747 $337,724
======== ======== ========
The accompanying notes are an integral part of consolidated financial statements.
</TABLE>
Form 10-Q
Page 3
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------
1997 1996
------- -------
<S> <C> <C>
Operating activities:
Net Income............................................... $ 4,388 $ 4,531
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................. 150 275
Provision for depreciation and amortization........... 869 924
Gain on sale of other real estate owned............... (95) (1,077)
Loans originated for resale........................... (49,310) (37,128)
Proceeds from loans sold.............................. 48,963 36,459
Gain on sale of loans................................. (334) (245)
Reduction in deferred income taxes.................... (67) (149)
Increase in interest receivable....................... 99 203
Increase in interest payable.......................... 517 1,219
Other................................................. 407 (965)
------- -------
Net cash provided by operating activities.......... 5,587 4,047
------- -------
Investing activities:
Purchases of investment securities....................... (21,995) (4,066)
Proceeds from maturity of investment securities.......... 16,192 14,965
Proceeds from sales of investment securities
available for sale...................................... 0 9,500
Loan repayments, net of loan originations................ 24,356 7,377
Loans purchased (dealer loans)........................... (25,190) (30,815)
Purchases of premises and equipment...................... (1,103) (491)
Proceeds from disposition of other real estate owned..... 207 3,485
------- -------
Net cash used by investing activities.............. (7,533) (45)
------- -------
Financing activities:
Net decrease in demand and savings deposits.............. (14,398) (8,680)
Net increase (decrease) in time deposits................. 22,052 (16,166)
Net increase in borrowed funds........................... 0 4,000
Dividends paid........................................... (1,189) (1,686)
Repayment of mortgage debt............................... (1,802) (45)
Proceeds from issuance of common stock................... 107 14
Purchase of treasury stock............................... (988) 0
------- -------
Net cash (used) by financing activities............ 3,782 (22,563)
------- -------
Increase (decrease) in cash and cash equivalents........ 1,836 (18,561)
Cash and cash equivalents at beginning of period......... 38,454 44,653
------- -------
Cash and cash equivalents at end of period............... $40,290 $26,092
======= =======
Supplemental cash flow information:
Income taxes paid..................................... $ 1,953 $ 2,540
Interest paid......................................... $ 4,767 $ 3,676
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Form 10-Q
Page 4
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 AND 1996
(Unaudited)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of September 30, 1997 and 1996, the consolidated statements of
cash flows for the nine month periods ended September 30, 1997 and 1996 and the
related consolidated statements of income for the nine and three month periods
ended September 30, 1997 and 1996 are unaudited.
The preparation of financial statements in conformity with generally
accepted accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of related revenue and expense during the
reporting period. Actual results could differ from those estimates. Management
believes that all adjustments, accruals and elimination entries necessary for
the fair presentation of the consolidated financial position and results of
operations for the interim periods presented have been made. All such
adjustments were of a normal recurring nature. The year-end balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The financial
statements should be read in conjunction with the Notes to Consolidated
Financial Statements contained in the Corporation's 1996 Annual Report
incorporated in the 1996 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #10, Stock Option Plan (the "Plan"), in the Notes
to Consolidated Financial Statements in the Corporation's 1996 Annual Report
incorporated in the 1996 Form 10-K (Exhibit #13). Shares under option under the
Plan had a dilutive impact on net income per share for the nine and three month
periods ended September 30, 1997 and 1996.
3. Disclosure of Accounting Policy:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, interest bearing deposits with banks and federal funds sold.
4. Adoption of Financial Accounting Standards:
In January 1997, the Corporation adopted Statement of Financial Accounting
Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities", ("SFAS No. 125"). SFAS No. 125, which was
adopted prospectively, provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
the concept of control. The adoption of SFAS No. 125 did not have a material
impact on the financial position or results of operation of the Corporation.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earning per Share", ("SFAS No. 128").
SFAS No. 128 specifies the computation, presentation and
Form 10-Q
Page 5
<PAGE>
disclosure requirements for earnings per share for entities with publicly held
common stock or potential common stock. SFAS No. 128 requires the presentation
of both basic earnings per share and, when not antidilutive, diluted earnings
per share. Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period.
Dilutive earnings per share is computed in a manner similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive common
shares had been issued.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15-Earnings
per share and is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Early application is not permitted.
Had SFAS No. 128 been in effect at September 30, 1997, the earnings per share
computation would have been as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Earnings per common share $2.00 $2.07 $ .70 $ .68
Earnings per common share-
assuming dilution $1.91 $2.00 $ .67 $ .66
</TABLE>
5. Loans:
Interest income on loans performing satisfactorily is recognized on the
accrual method of accounting. Nonperforming loans are loans on which scheduled
principal and/or interest is past due 90 days or more or loans less than 90 days
past due which are deemed to be problem loans by management. All nonperforming
loans, except consumer loans, are placed on nonaccrual status, and any
outstanding interest receivable at the time the loan is deemed nonperforming is
deducted from interest income. The charge-off policy for all loans, including
nonperforming and impaired loans, consider such factors as the type and size of
the loan, the quality of the collateral, and historical creditworthiness of the
borrower in management's assessment of the collectibility of such loans.
In May 1993, Statement of Financial Accounting Standards NO. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114"), was issued. Under the
requirements of SFAS No. 114, a loan is considered to be impaired when it is
probable that all amounts will not be collected in accordance with the terms of
the loan agreement. SFAS No. 114 was subsequently amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan- Income Recognition and Disclosure" ("SFAS No. 118"), to allow a
creditor to use existing methods for recognizing interest income on an impaired
loan. The adoption of SFAS No. 114 and No. 118 was required in the first
quarter of 1995.
As a part of its internal loan review process, management, when considering
making a loan an impaired loan, considers a number of factors, such as a
borrower's financial strength, the value of related collateral and the ability
to continue to meet the original contractual terms of a loan. Major risk
classifications, used to aggregate loans for application of SFAS No. 114 include
both credit and the risk of failure to repay a loan and concentration risk. A
loan is not considered impaired if there is merely an insignificant delay or
shortfall in the amounts of payments. An insignificant delay or shortfall is a
temporary delay in the payment process of a loan. However,
Form 10-Q
Page 6
<PAGE>
under these circumstances, the Bank expects to collect all amounts due,
including interest accrued at the contractual interest rate for the period of
the delay.
When a borrower is deemed to be unable to meet the original terms of a loan, the
loan is considered impaired. While all impaired loans are not necessarily
considered non-performing loans, if a loan is delinquent for 90 days or more, it
is considered both a nonperforming and impaired loan. All of the Corporation's
impaired loans, which amounted to $3,874,000, $2,069,000 and $971,000 at
September 30, 1997, December 31, 1996 and September 30, 1996, respectively, were
put on a nonaccrual status and any outstanding accrued interest receivable on
such loans at the time they were put on nonaccrual status, was reversed from
income.
Impaired loans subject to SFAS No. 114 are required to be measured based upon
the present value of expected future cash flows, discounted at the loan's
initial effective interest rate or at the loan's market price or fair value of
the collateral, if the loan is collateral dependent. As of September 30, 1997,
December 31, 1996 and September 30, 1996, impaired loans measured using the
present value of future cash flows amounted to $170,000, $162,000, and $782,000,
respectively. Impaired loans measured by the value of the loan's collateral
amounted to $3,704,000, $1,904,000, and $189,000, respectively.
If the loan valuation is less than the recorded value of the loan, an impairment
reserve must be established for the difference. The impairment reserve is
established by either an allocation of the reserve for loan losses or by a
provision for loan losses, depending on the adequacy of the reserve for loan
losses. All impairment reserves established in either 1997 or 1996 were
allocated from the existing reserve for loan losses. As of September 30, 1997,
December 31, 1996 and September 30, 1996, there were $3,252,000, $1,381,000 and
$851,000, respectively of impaired loans for which there is a related allowance
for loan losses. The total related allowance for loan loss at September 30,
1997, December 31, 1996 and September 30, 1996 was $187,000, $191,000 and
$140,000, respectively. Impaired loans for which no loan loss allowance was
allocated amounted to $622,000, $688,000 and $120,000 at September 30, 1997,
December 31, 1996 and September 30, 1996, respectively. Average impaired loans
during the first nine months of 1997 and 1996, respectively, amounted to
$2,685,000 and $1,150,000, compared to $2,237,000 for the twelve months ended
December 31, 1996.
While SFAS No. 118 permits existing income recognition practices to continue,
when a loan is classified as impaired, it is put on a nonaccrual status and any
income subsequently collected is credited to the outstanding principal balance.
Therefore, no interest income was reported on outstanding loans while considered
impaired during either nine month period ended September 30, 1997 or 1996. No
loans considered impaired since the adoption of SFAS No. 114 and SFAS No. 118
have been removed from the impaired loan status, other than those loans which
have been paid or charged off. Loans may be removed from impaired status and
returned to accrual status when all principal and interest amounts contractually
due are reasonably assured of repayment within an acceptable period of time and
there is a sustained period of repayment performance by the borrower, with a
minimum repayment of at least six months, in accordance with the contractual
terms of interest and principal. Subsequent income recognition would be
recorded under the existing terms of the loan.
Smaller balance, homogeneous loans, exclusively consumer loans, when included in
nonperforming loans, for practical consideration, are not put on a nonaccrual
status nor is the current accrued interest receivable reversed from income. The
adoption of SFAS No. 114 and SFAS No. 118 did not have a material
Form 10-Q
Page 7
<PAGE>
impact on the financial position or results of operations of the Corporation nor
do they materially impact the comparability of the credit risk tables under
Industry Guide 3.
Form 10-Q
Page 8
<PAGE>
6. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1997 1996 1996
----------------- ------------
<S> <C> <C> <C>
Balance, Beginning of period $4,182 $3,652 $3,652
------ ------ ------
Charge-offs:
Consumer (109) (133) (180)
Commercial and industrial 0 (41) (84)
Real estate (77) 0 (4)
------ ------ ------
Total charge-offs (186) (174) (268)
------ ------ ------
Recoveries:
Consumer 16 29 36
Commercial and industrial 99 400 404
Real estate 6 8 8
------ ------ ------
Total recoveries 121 437 448
------ ------ ------
Net (charge-offs) / recoveries (65) 263 180
Provision for loan losses 150 275 350
------ ------ ------
Balance, End of period $4,267 $4,190 $4,182
====== ====== ======
</TABLE>
Form 10-Q
Page 9
<PAGE>
ITEM 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
The realization in the first quarter of 1996 of a $1,073,000 pre-tax gain
from the sale of a commercial property (the "Nonrecurring Gain") in The Bryn
Mawr Trust Company's (the "Bank's") other real estate owned ("OREO"), was
primarily responsible for the increase in net income in the first nine months of
1996 compared to the first nine months of 1997. Exclusive of this pre-tax
Nonrecurring Gain and certain non-recurring expense items (the "Nonrecurring
Expenses"), which added $545,000 to net income for the first nine months of
1996, net income for the nine months ended September 30, 1997 was 10% ahead of
net income for the nine months ended September 30, 1996.
Including the after tax effect of the Nonrecurring Gain and Nonrecurring
Expenses in net income for the first nine months of 1996, Bryn Mawr Bank
Corporation (the "Corporation"), the parent company of The Bryn Mawr Trust
Company (the "Bank"), reported net income of $4,388,000 for the first nine
months of 1997, a 3% decrease over $4,531,000 of net income reported for the
first nine months of 1996. For the first nine months of 1997, earnings per
common share amounted to $1.91, a 5% decrease from earnings per common share of
$2.00 reported for the first nine months of 1996. Exclusive of the $.24
earnings per share, the result of the Nonrecurring Gain and Nonrecurring
Expenses, earnings per share increased 9% for the first nine months of 1997,
from $1.76 per share for the nine months ended September 30, 1996 to $1.91 per
share for the same period in 1997. Per share computations were based on
2,297,075 average shares outstanding for the first nine months of 1997 and
2,266,863 average shares outstanding for the first nine months of 1996,
including common stock equivalents for both periods.
For the third quarter of 1997, the Corporation reported net income of
$1,540,000 a 3% increase over net income of $1,499,000 reported for the third
quarter of 1996. For the three months ended September 30, 1997, earnings per
common share, including the dilutive effect of common stock equivalents,
amounted to $.67, a 2% increase over earnings per common share of $.66, reported
for the three months ended September 30, 1996. Average shares outstanding,
including the dilutive effect of common stock equivalents were 2,298,355 for the
three months ended September 30, 1997 compared to average shares outstanding of
2,265,824 for the same period in 1996.
Exclusive of the after tax effect of the Nonrecurring Gain and
Nonrecurring Expenses, the increase in earnings, for the first nine months of
1997 over the same period in 1996, may be attributed to a number of factors,
including an increase in net interest income, up 2% over the first nine months
of 1996, a decrease in the provision for loan losses, down 45% and an increase
of 20% in other income, primarily due to a 29% increase in fees for trust
services. Other expenses, exclusive of the Nonrecurring Expenses, rose 8% for
the first nine months of 1997 compared to the same period in 1996.
Form 10-Q
Page 10
<PAGE>
Higher yielding average outstanding loan balances for the first nine months
of 1997 grew 4% from average daily outstanding loan balances for the first nine
months of 1996. The increase in average loan balances was partially funded by
proceeds from the maturity of certain securities in the Bank's investment
portfolio, resulting in a 20% decrease in lower yielding average outstanding
investment balances. The average cost of funds for the nine months ended
September 30, 1997 and September 30, 1996 remained relatively level at 2.3% and
2.2% respectively. The Bank's annualized net interest margin was 5.55% for the
first nine months of 1997 compared to 5.66% for the same period in 1996.
The prime rate increased by 25 basis points from September 1996 to
September 1997. Since, in the short term, 30 days or less, the Bank is asset
rate sensitive, a rising prime rate usually will cause a related increase in
interest income. This increase in the Bank's prime rate along with a change in
the mix of earning assets, increasing higher yielding average outstanding loan
balances and increasing average federal funds sold balances while decreasing
lower yielding average outstanding investment balances, caused the yield on
earning assets for the first nine months of 1997 to remain unchanged at 7.8%
compared to the same period in 1996. While interest rate movements and their
effect on future revenue streams cannot be predicted, management believes that
there are presently no known trends, events or uncertainties that will have or
are reasonably likely to have a material effect on the Corporation's liquidity,
capital resources or results of operations in the future.
NET INTEREST INCOME
- -------------------
For the nine months ended September 30, 1997, net interest income rose 2%
to $13,578,000 from $13,320,000 in 1996. Total interest income grew 4% for the
first nine months of 1997, to $18,862,000 from $18,215,000 for the first nine
months of 1996. Interest expense rose 6% for the first nine months of 1997, to
$5,284,000 from $4,895,000 for the first nine months of 1996. The yield on
earning assets for the first nine months of 1997 remained level at 7.8% compared
to the first nine months of 1996 while the effective rate paid on interest
bearing deposits for the first nine months of 1997 was 3.0% compared to 2.9% for
the same period in 1996.
Interest and fees on loans increased 3% from $16,009,000 for the first nine
months of 1996 to $16,478,000 for the first nine months of 1997. A relatively
level loan portfolio yield, 8.3% and 8.2% for the periods ending September 30,
1997 and 1996 respectively, combined with a 4% increase in average outstanding
loan balances from $249,178,000 for the first nine months of 1996 to
$259,607,000 for the same period in 1997, are the primary reasons for this
increase in loan related interest and fee income.
Interest income on investments decreased $357,000 or 18%, from $2,014,000
for the first nine months of 1996 to $1,657,000 for the first nine months of
1997. Interest from U.S. Treasury obligations decreased $569,000 or 50% from
$1,142,000 for the first nine months of 1996 to $573,000 for the first nine
months of 1997. The primary reason for this decrease was a $13,662,000 or 51%
decrease in the average balance of U.S. Treasury securities, from $26,640,000
during the first nine months of 1996 to $12,978,000 for the comparable period in
1997. The decrease in U.S. Treasury obligations was a result of investment
maturities as opposed to sales, the proceeds of which were used to fund loan
Form 10-Q
Page 11
<PAGE>
growth. Interest income on U.S. Government Agency securities increased $297,000
or 59% from $501,000 for the nine months ended September 30, 1996 to $798,000 at
September 30, 1997. A 56% increase in the average balance of U.S. Government
Agency securities, from $10,949,000 for the nine months ended September 30, 1996
to $17,080,000 for the same period in 1997, is primarily responsible for the
related 59% increase in interest income. Interest income on obligations of
states and political subdivisions decreased by 27%, from $315,000 for the nine
months ended September 30, 1996 to $229,000 for the same period in 1997. A
decrease of $2,100,000 or 25% in average outstanding balances of obligations of
state and political subdivisions, from $8,394,000 in average outstanding
balances for the first nine months of 1996 down to $6,294,000 for the same
period in 1997 is the primary reason for this decrease. The overall yield on
investment securities increased from 5.7% for the first nine months of 1996 to
5.9% for the first nine months of 1997, due primarily to the maturity of lower
yielding investments in the Bank's investment portfolio.
Interest expense on deposits increased $389,000 or 8% to $5,284,000 for the
nine months ended September 30, 1997 compared to $4,895,000 for the same period
in 1996. The average cost of interest bearing deposits increased to 3.0% for
the nine months ended September 30, 1997 compared to 2.9% for the same period in
1996. The average interest bearing deposit balances increased 4% to
$233,717,000 at September 30, 1997 compared to $225,606,000 for the same period
in 1996. However, the average deposit mix has changed for the first nine months
of 1997 compared to the same period in 1996. Average non-transaction savings
and Market Rate Accounts both decreased 8%, while the Bank's average transaction
based NOW account and non-interest bearing demand deposit account balances
increased 5% and 4%, respectively. During the first quarter of 1995, the Bank
offered a new one and two year Premier CD, at highly competitive rates of
interest. The one year Premier CDs matured during the first quarter of 1996 and
were not renewed. The two year Premier CDs matured during the first quarter of
1997 and a CD promotion, offering a 50 basis point premium over the then current
market rate of interest for a nine month CD was offered. As a result of this
promotion, the average daily outstanding balances of time deposits increased 24%
for the first nine months of 1997 compared to 1996. The annualized cost of CDs
increased 10 basis points from 5.2% to 5.3%, respectively for each period.
Other than the 10 basis point increase in the cost of time deposits, the average
cost of each interest bearing deposit product remained level with the respective
cost for the same period in 1996. The result was a 10 basis point increase in
the average cost of interest bearing deposits from 2.9% to 3.0% for each
respective period. The average cost of deposits, including non-interest bearing
demand deposits also increased 10 basis points from 2.2% to 2.3% for each
respective period.
For the first nine months of 1997, the net interest margin decreased to
5.55% from 5.66% for same period in 1996. The net interest margin is computed
exclusive of related loan fee income.
For the third quarter of 1997, net interest income of $4,656,000 increased
$77,000 or 2% over net interest income of $4,579,000 reported for the third
quarter of 1996. Total interest income grew $279,000 or 4% from $6,203,000 for
the third quarter of 1996 to $6,482,000 for the same period in 1997. Interest
and fees on loans grew $45,000 or 1% for the third quarter of 1997 over the same
period in 1996. Interest on federal funds sold increased $232,000 or 3,867% due
to excess funds from the CD promotion offered early in
Form 10-Q
Page 12
<PAGE>
1997 and lower than anticipated average outstanding loan volumes. Interest
income on U. S. Treasury securities, and Obligations of states and political
subdivisions decreased $147,000 or 45% and $27,000 or 28%, respectively, during
the third quarter of 1997 compared to the third quarter of 1996. Interest
income on U. S. Government agency securities increased $175,000 or 105% for the
third quarter of 1997 compared to the third quarter of 1996. Interest on
deposits increased $202,000 or 12% from $1,624,000 for the third quarter of 1996
to $1,826,000 for the same period in 1997. The increase in average CD balances
outstanding for the third quarter of 1997 compared to 1996 is responsible for
this increase in interest expense.
LOAN LOSS PROVISION
- -------------------
The loan loss provision represents management's determination of the amount
necessary to be charged against the current year's income in order to maintain
an adequate loan loss reserve. To help determine the appropriate level of the
loan loss reserve, the Bank maintains an Officer Loan Review Committee (the
"Committee") and retains the services of an independent loan review consultant
(the "Consultant"). The Consultant performs an independent review of the Bank's
loan portfolio and the loan loss reserve. The Committee meets monthly to review
the adequacy of the loan loss reserve as well as all nonaccrual loans, any
potential problem loans and loans criticized by either the Bank's regulators or
the Consultant.
Based on ratings assigned by the Committee on the quality of the loans
which are reviewed, a specific reserve may be computed for each loan. In
addition to the specific reserve amounts, the balance of loans not reviewed by
the Committee has a reserve computed based on the average of the prior five
years write-offs plus the annualized write-offs for the current year. Including
annualized write-offs for the current year takes into consideration current
trends in both volumes and write-offs, to be included in the computation.
Finally, an amount equal to .5% of all outstanding loans is included in the loan
loss reserve calculation to address possible unforeseen loan loss reserve
requirements. The sum of the specific reserves, the reserve calculated based on
average write-offs and the reserve calculated based on the entire portfolio for
possible unforeseen loan losses is compared to the Bank's current loan loss
reserve balance. Any additions deemed necessary to the loan loss reserve are
then made on a timely basis.
Based on the results of the aforementioned reviews, the low level of loan
delinquencies, 110 basis points of total loans at September 30, 1997 and the
size of the loan loss reserve, 1.64% of total loans at September 30, 1997, the
loan loss provision was reduced to $150,000 for the nine months ended September
30, 1997, compared to $275,000 for the same period in 1996. The loan loss
reserve amounted to 1.61% of outstanding loans at September 30, 1996.
Nonperforming loans have decreased by 4% to $867,000 as of September 30, 1997,
down from $907,000 as of December 31, 1996 and increased 186% from $303,000 in
nonperforming loans as of September 30, 1996. The loan loss reserve amounted to
492% of nonperforming loans as of September 30, 1997 compared to 1,382% as of
September 30, 1996. Based on the results of both the internal and external loan
review processes and the current level of nonperforming loans, management
believes the loan loss reserve to be adequate as of September 30, 1997.
Form 10-Q
Page 13
<PAGE>
During the first quarter of 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS No. 114"), as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". SFAS No. 114 requires measurement of impaired
loans based on the present value of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's observable market price or, as
a practical expedient, the fair value of the collateral, if the loan is
collateral dependent. SFAS No. 114 does not apply to large groups of smaller-
balance homogeneous loans that are collectively evaluated for impairment. The
adoption of SFAS No. 114 did not have a material impact on the financial
position or results of operations of the Corporation.
OTHER INCOME
- ------------
As discussed above, during the first quarter of 1996, the Bank sold a
commercial real estate property, included in OREO, and realized a pre-tax gain
of $1,073,000 on the sale. Total other income increased by $322,000 or 4%, to
$8,351,000 for the nine months ended September 30, 1997 from $8,029,000 for the
same period in 1996. Exclusive of the Nonrecurring Gain on the sale of OREO,
reported in 1996, other income increased 20% for the first nine months of 1997,
compared to the same period in 1996.
Fees for trust services rose 29% from $4,416,000 for the first nine months
of 1996 to $5,675,000 for the same period in 1997. The establishment of
additional lines of business, including Investment Counsellors of Bryn Mawr, in
January of 1996, to provide investment management services to high net worth
individuals and employee benefit plans, increased asset values and an increase
in the schedule of trust fees charged are the primary reasons for the increase
in fees for trust services.
For the nine month period ended September 30, 1997, the Bank originated
and sold $48,449,000 of mortgage loans in the secondary mortgage market, a 33%
increase from $36,459,000 of mortgage loans originated and sold during the first
nine months of 1996. The sale of mortgage loans for the first nine months of
1997 and 1996 earned a total of related fee income and net gains on sales of 106
basis points, respectively. Deferred loan fees earned as income resulting from
the sale of residential mortgage loans in the secondary mortgage market amounted
to $287,000 or 59 basis points earned on the sale of $48,449,000 of residential
mortgage loans in the secondary mortgage market, compared to $214,000 or 59
basis points earned on the sale of $36,459,000 of residential mortgage loans in
the secondary mortgage market during the same period of 1996. Gains on the
sales of loans in the secondary mortgage market were $228,000 or 47 basis points
for the first nine months of 1997 compared to $172,000 or 47 basis points for
the same period in 1996.
For the nine month period ended September 30, 1997, service charges on
deposit accounts of $838,000 increased 3% over $814,000 for the same period in
1996. In February of 1997, the Bank began assessing a surcharge of $1.00 for
each cash withdrawal made at its automated teller machines ("ATM") by non-Bank
cardholders. As a result, surcharge income amounted to $53,000 for the first
nine months of 1997 compared to no surcharge income for the same period of 1996.
All other service charge income decreased $29,000 or 4% as a result of the
increase in interest rates which caused an increase in the earnings credit rate
used to offset these service charges.
Form 10-Q
Page 14
<PAGE>
Prior to its disposal in March 1996, the commercial property included in
the Bank's OREO, produced a revenue stream included in other operating income.
This revenue stream was eliminated with the sale of the OREO property. Other
operating income decreased by $113,000 or 16%, from $722,000 for the first nine
months of 1996 to $609,000 for the same period in 1997. The OREO revenue
stream, included in other operating income for the first nine months of 1996
amounted to $74,000. During 1996, the Bank also received a brokering fee of
$55,000 for brokering loans between two separate banks. This income was not
included in 1997's revenue stream. This primarily accounts for the total
decrease in other operating income from period to period.
Total other income increased $590,000 or 26% from $2,268,000 for the third
quarter of 1996 to $2,858,000 for the same quarter in 1997. Trust fees grew
$472,000 or 33% from $1,441,000 for the third quarter of 1996 to $1,913,000 for
the same quarter in 1997. Service charges on deposits grew $23,000 or 9% from
$258,000 for the third quarter of 1996 to $281,000 for the third quarter of
1997. Net gains on sale of loans increased $81,000 or 99% as a result of an
increase in the volume of mortgages originated and sold in the secondary market
during the third quarter of 1997 compared to the same quarter in 1996. Net
gains on sale of OREO remained practically unchanged at $1,000 for the third
quarter of 1997 compared to $2,000 in 1996.
OTHER EXPENSE
- -------------
Total other expense increased 6% for the first nine months of 1997 to
$15,215,000 from $14,317,000 for the first nine months of 1996. Exclusive of
the Nonrecurring Expenses, incurred during the first quarter of 1996, other
expenses rose 8% for the first nine months of 1997 compared to the same period
in 1996. Salaries and wages grew $1,036,000 or 16%, from $6,412,000 for the
nine months ended September 30, 1996 to $7,448,000 for the same period in 1997.
Of this increase, $651,000 relates to regular salary expense, representing a 10%
increase in regular, part time and overtime salaries during the first nine
months of 1997, compared to 1996. Incentive salaries were up $385,000 or 51%,
from $754,000 for the nine months ended September 30, 1996 to $1,139,000 for the
same period in 1997. Incentive salaries are primarily related to the
profitability of both the Bank and its related business segments. The 51%
increase in the Bank's incentive salaries was primarily related to the increased
profitability of its trust and mortgage banking business segments. The Bank's
full time equivalent staff increased to 213.5 as of September 30, 1997, compared
to 201 as of September 30, 1996.
Employee benefits expenses decreased $46,000 or 3% compared to the first
nine months of 1996, primarily a result of a $179,000 decrease in the projected
pension expense for the first nine months of 1997 compared to the same period in
1996. During 1996, the Bank projected a larger than incurred pension expense.
Due to strong performance of the Bank's pension plan assets, the actual pension
expense for 1996 was lower than planned and was adjusted in the fourth quarter
of 1996. The actuarial projections for 1997 project a negative pension expense.
This is the primary reason for the $179,000 reduction in pension expense from
the first nine months of 1996 compared to the same period in 1997. Partially
offsetting this $179,000 decrease in employee benefits expenses for 1997 was a
decrease of $66,000 for a rebate in medical insurance premiums, received by the
Bank from its medical insurance carrier in 1996.
Form 10-Q
Page 15
<PAGE>
Occupancy expense decreased $153,000 or 13% for the first nine months of
1997 from $1,165,000 for the first nine months of 1996 to $1,012,000 for the
first nine months of 1997. The largest additional cost in 1996, primarily
responsible for the decrease in 1997, was $30,000 for the removal of snow during
the "Blizzard of 1996". Furniture and equipment expenses grew $266,000 or 30%
over the first nine months of 1996, from $893,000 for the first nine months of
1996 to $1,159,000 for the same period in 1997. Planned depreciation and
amortization expenses associated with the conversion to an in-house EDP system
primarily account for this increase in 1997.
Other operating expenses decreased $205,000 or 5% over the first nine
months of 1996, from $4,435,000 for the first nine months of 1996 to $4,230,000
for the first nine months of 1997. The largest decrease in other operating
expense occurred in computer processing fees, down by $212,000 for the first
nine months of 1997 compared to the same period in 1996. This decrease was
primarily due to the conversion to an in-house EDP system during the first
quarter of 1996, eliminating this related expense later in 1996. This cost
primarily offsets the additional related increased cost of depreciation and
amortization, included in furniture and equipment expense. Miscellaneous
expense decreased by 121,000 because the Bank incurred a $70,000 expense in 1996
to settle a regulatory dispute. The cost of maintenance of OREO decreased by
$99,000 for the first nine months of 1997, as the Bank increased its OREO
reserve during the first quarter of 1996 to provide additional reserves for its
last large commercial OREO property. No such increase was deemed necessary
during 1997. These decreases were offset by increases in the Bank Shares Tax of
$43,000, a result of the increase in the value of shares outstanding. Legal
expense increased $63,000 for the first nine months of 1997 compared to the same
period in 1996. In April of 1997, the Corporation paid off the balance of a
mortgage of $1,776,000 on the building that houses the Trust and Investment
Division located at 10 Bryn Mawr Avenue, Bryn Mawr, PA. As a result, the
Corporation incurred an early payoff fee of $36,000 included in other operating
expenses. The cost of Federal Deposit Insurance Corporation ("FDIC") deposit
insurance premiums was eliminated in 1996 for all banks that were classified as
"Well Capitalized" by the FDIC. In 1997 insurance premiums were reinstated by
the FDIC. As a result, this cost increased $25,000 for the first nine months of
1997 compared to 1996. The remaining other operating expenses for the first
nine months of 1997 increased by 2% over the same period in 1996.
For the quarter, total other expenses increased 14% or $626,000 to
$5,153,000 for the quarter ended September 30, 1997 compared to $4,527,000 in
1996. Salaries and wages increased $439,000 or 20% from $2,143,000 for the
quarter ended September 30, 1996 to $2,582,000 for the same period in 1997. The
majority of this increase occurred in regular salary expense, up $276,000 or
15%, reflecting recurring salary increases and staff additions. Other salaries,
primarily incentive related expenses, rose $162,000 or 63% for the third quarter
of 1997 compared to the same period in 1996, due primarily to increased trust
and mortgage banking profitability. Employee benefit expenses increased by
$107,000 or 30% for the third quarter of 1997 over 1996, primarily the result of
a $51,000 increase in the projected pension expense for the period. A $33,000
or 9% increase in furniture, fixtures and equipment expense is due primarily to
a planned increase in depreciation expense, related to furniture, fixtures and
equipment put into service during the third quarter of 1996, a result of the EDP
conversion that occurred earlier in 1996. Other operating expenses increased 8%
or $99,000 for the third quarter of
Form 10-Q
Page 16
<PAGE>
1997, compared to the same quarter in 1996, This increase was primarily
related to legal fees which were up $42,000, relating primarily to real estate
matters. Employee Activity and Tuition increased $33,000 for the third
quarter of 1997 compared to the same period of 1996. Exclusive of these items,
other operating expenses grew less than 1% for the third quarter of 1997,
compared to the same quarter in 1996.
APPLICABLE INCOME TAXES
- -----------------------
The Corporation's effective tax rate for the first nine months of 1997
remained level at 33% compared to the same period in 1996.
FINANCIAL CONDITION
- -------------------
Total assets increased 3% from $345,747,000 at December 31, 1996 to
$354,909,000 as of September 30, 1997. Total assets grew 5% from $337,724,000
as of September 30, 1996.
Outstanding earning assets increased 4% to $318,989,000 as of September 30,
1997 from $305,911,000 as of December 31, 1996. The Bank's loan portfolio
increased 1%, to $260,877,000 at September 30, 1997 from $259,427,000 as of
December 31, 1996. Outstanding loans increased by .3%, from $259,968,000 as of
September 30, 1996. Outstanding consumer loans of $79,080,000 at September 30,
1997 were down by 3% from $81,512,000 as of December 31, 1996 and were down 1%
from $79,659,000 as of September 30, 1996. Outstanding commercial loans at
September 30, 1997 were $72,449,000, a 3% decrease from outstanding commercial
loan balances of $74,688,000 at December 31, 1996 and even with $72,617,000 at
September 30, 1996. Payoffs of larger balance commercial loans, during the
first quarter of 1997, are primarily responsible for the decrease in balances
from December 31, 1996. Outstanding real estate loans were $109,348,000 at
September 30, 1997, a 6% increase over $103,227,000 in outstanding real estate
loans at December 31, 1996 and a 2% increase from $107,692,000 in outstanding
real estate loans as of September 30, 1996.
The Bank's investment portfolio, having a market value of $40,631,000 at
September 30, 1997, increased 17% from a market value of $34,747,000 at December
31, 1996 and increased 6% from $38,372,000 as of September 30, 1996. During the
first quarter of 1997, the Bank offered a nine month CD bearing an interest rate
of 50 basis points over the then current interest rate for such CDs. Some of
the proceeds from the CDs were used to purchase securities for the Bank's
investment portfolio and the remainder were sold as federal funds.
Due primarily to rising market interest rates, maturities and the
shortening of the average term of the investment portfolio, the unrealized loss
in the investment portfolio of $1,000 at December 31, 1996 changed to an
unrealized gain of $74,000 as of September 30, 1997. The unrealized investment
appreciation, net of deferred income taxes, increased the Corporation's
shareholders' equity on the balance sheet by $49,000 as of September 30, 1997.
Federal funds sold amounted to $17,380,000 as of September 30, 1997, a 50%
increase over $11,616,000 as of December 31, 1996 and a 922% increase over
$1,700,000 in federal funds sold as of September 30, 1996. The increase in
federal funds available for sale at September 30, 1997 is primarily a result
Form 10-Q
Page 17
<PAGE>
of retaining the majority of maturing two year CDs during the first quarter of
1997. Management continues to monitor the liquidity requirements of the Bank
and believes that it has the ability to increase its liquidity position through
growth of new CDs, borrowing from the Federal Home Loan Bank of Pittsburgh (the
"FHLB") and the sale of investments, classified as available for sale.
Nonperforming assets amounted to $2,278,000 at September 30, 1997, a 6%
decrease from $2,430,000 at December 31, 1996 and a 35% increase from
nonperforming assets of $1,689,000 at September 30, 1996. Nonperforming loans
decreased 4% to $867,000 at September 30, 1997 compared to nonperforming loans
of $907,000 at December 31, 1996 and increased 186% from $303,000 as of
September 30, 1996. The OREO balances decreased 7% from $1,523,000 as of
December 31, 1996 to $1,411,000 at September 30, 1997, which was a 2% increase
from an OREO balance of $1,386,000 at September 30, 1996. As of September 30,
1997, one large commercial property and one smaller property remained as OREO on
the Bank's books.
As of September 30, 1997 and 1996, there were no significant loans
classified for regulatory purposes as loss, doubtful, substandard or special
mention that either (i) represent or result from trends or uncertainties which
management reasonably expects will impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information, causing management to have serious doubts as to the
borrower's ability to comply with the loan repayment terms.
Total deposits increased 3% to $310,837,000 as of September 30, 1997 from
$303,183,000 as of December 31, 1996. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total average
outstanding deposit balances increased 4% to $308,820,000 for the nine month
period ended September 30, 1997 from $298,057,000 for the same period in 1996.
Although the amount of average total deposits remained relatively stable, the
mix of deposits shifted. As a reaction to a consistently low interest rate
environment for interest bearing deposits, average outstanding savings and
Market Rate Account balances both decreased by 8% from the first nine months of
1996 to the first nine months of 1997. Average savings balances decreased
$3,399,000 from $42,197,000 for the first nine months of 1996 to $38,798,000 for
the same period in 1997 and Market Rate Account balances decreased $3,975,000
from $49,357,000 in average daily outstanding balances for the nine months ended
September 30, 1996 to $45,382,000 for the same period in 1997. Average
outstanding NOW account balances grew 5% or $3,402,000, from $70,291,000 for the
first nine months of 1996 to $73,693,000 for the same period in 1997. The two
year Premier CDs, offered during the first quarter of 1995 matured during the
first quarter of 1997. In an effort to retain some of these deposits, the Bank
offered a nine month CD with a 50 basis point premium over the then current rate
of interest for a nine month CD. The net result was an increase in the average
outstanding CD balances, by $14,502,000 or 24%, from $61,344,000 in average
outstanding balances for the first nine months of 1996 to $75,846,000 for the
same period in 1997. Noninterest bearing demand deposit average outstanding
balances grew 4% or $2,652,000 from $72,451,000 for the nine months ended
September 30, 1996 to $75,103,000 for the same period in 1997.
Form 10-Q
Page 18
<PAGE>
LIQUIDITY, INTEREST RATE SENSITIVITY
- ------------------------------------
The Bank's liquidity is maintained by managing its core deposits,
purchasing federal funds, selling loans in the secondary market, and borrowing
from the FHLB. The Bank's liquid assets include cash and cash equivalents as
well as certain unpledged investment securities. Bank management has developed
a revised liquidity measure, incorporating its ability to borrow from the FHLB
to meet liquidity needs and goals. Periodically, the Asset / Liability
Committee of the Bank reviews the Bank's liquidity needs and reports its
findings to the Risk Management Committee of the Bank's Board of Directors.
In the short term, 30 days or less, the Bank is asset rate sensitive after
adjusting the interest rate sensitivity of savings deposits based on
management's experience and assumptions regarding the impact of product pricing,
interest rate spread relationships and customer behavior. Asset rate
sensitivity will result in a greater portion of assets compared to deposits
repricing with changes in interest rates within specified time periods. The
opposite effect results from being liability rate sensitive. Asset rate
sensitivity in the short term, in an increasing rate environment should produce
an increase in net interest income. The Bank uses simulation models to help
measure its interest rate risk and to help manage its interest rate sensitivity.
The simulation models consider not only the impact of changes in interest rates
on forecasted net interest income, but also such factors as yield curve
relationships, possible loan prepayments, and deposit withdrawals. As of
September 30, 1997, based on the results from the simulation models, the amount
of the Bank's interest rate risk was within the acceptable range as established
by the Policy.
CAPITAL RESOURCES
- -----------------
Total consolidated shareholders' equity of the Corporation was $38,176,000,
or 10.8% of total assets, as of September 30, 1997, compared to total
shareholders' equity of $35,808,000, or 10.4% of total assets, as of December
31, 1996. As of September 30, 1996, shareholders' equity was $34,550,000, or
10.2% of total assets. The Corporation's risk weighted Tier I capital ratio was
13.65% as of September 30, 1997 compared to 12.75% and 12.39% at December 31,
1996 and September 30, 1996, respectively. The respective Tier II ratios were
14.91%, 14.01% and 13.65%, respectively. In March 1996, the Corporation
declared a one-time special dividend of $.32 per share, to distribute to
shareholders the after-tax proceeds of the gain on the disposition of a
commercial property, held in the Bank's OREO category. In January, April and in
July 1997, the Corporation declared its regular dividend of $.18 per share, a
20% increase over $.15 per share declared in January, April and in July 1996.
As of September 30, 1997, the cumulative dividends declared amounted to $.54 per
share, compared to $.77 per share for the first nine months of 1996, which
included the one-time special dividend of $.32 per share.
Under the stock repurchase plan established in March 1997, the Corporation
repurchased 25,850 shares of treasury stock as of September 30, 1997. The
average cost of the cumulative shares purchased was $38.22 per share, resulting
in an increase of $988,000 in treasury stock from $1,539,000 at December 31,
1996 and September 30, 1996, respectively to $2,527,000 as of September 30,
1997. The number of treasury shares held by the Corporation as
Form 10-Q
Page 20
<PAGE>
of September 30, 1997 was 328,670 compared to 302,820 as of December 31, 1996
and September 30, 1996, respectively.
FORMATION OF NEW SUBSIDIARY
- ---------------------------
On July 1, 1997, the Corporation established a de novo subsidiary, Tax
Counsellors of Bryn Mawr, Inc. ("TCBM".) TCBM is a wholly owned subsidiary of
the Corporation that will provide a broad range of corporate and personal tax
services for entrepreneurs, family-owned businesses, and professionals. The
establishment of TCBM will further the Corporation's strategy to be a
diversified financial services company with greater emphasis on fee income.
This move follows last year's formation of BMT Mortgage Company and Investment
Counsellors of Bryn Mawr, both divisions of the Bank. The new subsidiary had no
impact on the financial condition of the Corporation for the period ending
September 30, 1997. The establishment of TCBM as a subsidiary of the
Corporation does not involve a leverage activity. The Corporation has
established a capital account of $75,000 for TCBM which will be sufficient to
permit TCBM to operate its business for the foreseeable future.
Form 10-Q
Page 20
<PAGE>
PART II. OTHER INFORMATION
--------------------------
September 30, 1997
Item 1. Legal Proceedings
- --------
None
Item 2. Changes in Securities
- --------
None
Item 3. Defaults Upon Senior Securities
- --------
None
Item 4. Submission of Matters to Vote of Security Holders
- --------
None
Item 5. Other Information
- --------
None
Item 6. Exhibits and Reports on Form 8-K
- --------
On March 26, 1997, the Corporation filed a Report on Form 8-K reporting
that the Corporation established a stock repurchase program to
repurchase up to 5% of the outstanding shares of the Corporation's
stock, with a limit of no more than $4,000,000 to be paid for the
stock. the stock repurchase program was instituted to help offset the
dilutive effect of the Corporation's employee and outside directors'
stock option plans.
Form 10-Q
Page 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bryn Mawr Bank Corporation
Date: November 7,1997 By: /s/ Robert L. Stevens
---------------- ------------------------
Robert L. Stevens
Chairman,
President & Chief
Executive Officer
Date: November 7, 1997 By: /s/ Joseph W. Rebl
----------------- ------------------------
Joseph W. Rebl
Treasurer, Assistant
Secretary, Principal
Financial Officer and
Chief Accounting
Officer
Form 10-Q
Page 22
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