<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 June 30, 1998 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) (Zip Code)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
- --------------------------------------------------------------------------------
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 August 4, 1998
- --------------------------------------------------------------------------------
Common Stock, par value $1 4,325,818
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED June 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the six
months ended June 30, 1998 and 1997.......................................Page 1
Consolidated Statements of Income for the three
months ended June 30, 1998 and 1997.......................................Page 2
Consolidated Balance Sheets as of June 30, 1998,
December 31, 1997 and June 30, 1998.......................................Page 3
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997.......................................Page 4
Consolidated Statements of Comprehensive Income
for the six months and three months ended June 30, 1998 and 1997..........Page 5
Notes to Consolidated Financial Statements...........................Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................Page 11
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
(Dollars In Thousands*)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
------------ ------------
<S> <C> <C>
Interest income:
Interest and fees on loans........................................... $ 11,496 $ 10,838
Interest on federal funds sold....................................... 388 482
Interest on interest bearing deposits with banks..................... 40 6
Interest and dividends on investment securities:
U.S. Treasury securities..................................... 372 396
U.S. Government Agency securities............................ 630 456
Obligations of states and political subdivisions............. 111 161
Dividend income.............................................. 43 41
---------- ----------
Total interest and dividend income........................................... 13,080 12,380
Interest expense on deposits................................................. 3,042 3,458
---------- ----------
Net interest income.......................................................... 10,038 8,922
Loan loss provision.......................................................... 50 100
---------- ----------
Net interest income after loan loss provision................................ 9,988 8,822
---------- ----------
Other income:
Fees for Trust services.............................................. 4,538 3,762
Service charges on deposits.......................................... 568 557
Other service charges, commissions and fees.......................... 708 509
Net gain on sale of loans............................................ 316 171
Net gain on sale of other real estate owned.......................... 195 94
Other operating income............................................... 826 400
---------- ----------
Total other income........................................................... 7,151 5,493
---------- ----------
Other expenses:
Salaries and wages................................................... 6,132 4,866
Employee benefits.................................................... 1,065 907
Occupancy and bank premises.......................................... 665 686
Furniture, fixtures, and equipment................................... 826 770
Other operating expenses............................................. 3,337 2,833
---------- ----------
Total other expenses......................................................... 12,025 10,062
---------- ----------
Income before income taxes................................................... 5,114 4,253
Applicable income taxes...................................................... 1,740 1,405
----------- ----------
Net Income................................................................... $ 3,374 $ 2,848
=========== ==========
Earnings per common share**.................................................. $0.78 $0.65
Earnings per common share- assuming dilution**............................... $0.74 $0.62
Cash dividends declared**.................................................... $0.23 $0.18
Weighted-average shares outstanding**....................................... 4,342,894 4,406,838
Dilutive potential common shares**........................................... 224,710 188,516
---------- ----------
Adjusted weighted-average shares**.......................................... 4,567,604 4,595,354
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
** Restated to reflect the 2-for-1 stock split, effective August 3, 1998.
1
<PAGE>
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
June 30
1998 1997
------------ -----------
<S> <C> <C>
Interest income:
Interest and fees on loans................................... $ 5,834 $ 5,471
Interest on federal funds sold............................... 168 251
Interest on interest bearing deposits with banks............. 10 4
Interest and dividends on investment securities:
U.S. Treasury securities............................. 183 177
U.S. Government Agency Securities.................... 291 252
Obligations of states and political subdivisions..... 60 78
Dividend income...................................... 24 22
---------- ---------
Total interest income................................................ 6,570 6,255
Interest expense on deposits......................................... 1,514 1,776
---------- ---------
Net interest income.................................................. 5,056 4,479
Loan loss provision.................................................. 25 50
---------- ---------
Net interest income after loan loss provision........................ 5,031 4,429
---------- ---------
Other income:
Fees for Trust services...................................... 2,360 1,849
Service charges on deposits.................................. 301 287
Other service charges, commissions and fees.................. 290 197
Net gain on sale of loans.................................... 189 104
Net gain on sale of other real estate owned.................. 109 93
Other operating income....................................... 587 272
---------- ---------
Total other income................................................... 3,836 2,802
---------- ---------
Other expenses:
Salaries and wages........................................... 3,236 2,441
Employee benefits............................................ 515 429
Occupancy and bank premises.................................. 344 338
Furniture, fixtures, and equipment........................... 426 395
Other operating expenses..................................... 1,848 1,553
---------- ---------
Total other expenses................................................. 6,369 5,156
---------- ---------
Income before income taxes........................................... 2,498 2,075
Applicable income taxes.............................................. 870 685
---------- ---------
Net Income........................................................... $ 1,628 $ 1,390
========== ==========
Earnings per common share**.......................................... $0.38 $0.32
Earnings per common share- assuming dilution**....................... $0.36 $0.30
Cash dividends declared**............................................ $0.115 $0.09
Weighted-average shares outstanding**................................ 4,330,764 4,407,294
Dilutive potential common shares**................................... 227,514 187,800
----------- ----------
Adjusted weighted-average shares**................................... 4,558,278 4,595,094
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
**Restated to reflect the 2-for-1 stock split, effective August 3, 1998.
2
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
(Unaudited) (Unaudited)
----------- ------------ ------------
<S> <C> <C> <C>
Assets
Cash and due from banks..................................... $ 23,253 $ 34,464 $ 23,906
Interest bearing deposits with banks........................ 85 2,118 84
Federal funds sold.......................................... 8,300 16,600 12,300
Investment securities available for sale, at market (amortized
cost of $36,043, $40,573 and $37,729 as of June 30, 1998,
December 31, 1997 and June 30, 1997, respectively)........ 36,124 40,666 37,703
Loans:
Consumer.................................................. 73,668 76,963 80,830
Commercial................................................ 87,318 75,474 72,023
Real Estate............................................... 118,055 116,121 107,631
--------- --------- --------
Total loans............................................. 279,041 268,558 260,484
Less: Allowance for possible loan losses.................. (4,064) (4,074) (4,272)
--------- --------- --------
Net loans............................................... 274,977 264,484 256,212
--------- --------- --------
Premises and equipment, net................................. 12,012 11,790 11,277
Accrued interest receivable................................. 2,076 2,039 1,979
Other real estate owned..................................... 0 25 1,411
Other assets................................................ 2,932 2,024 2,163
--------- --------- --------
Total assets............................................ $ 359,759 $374,210 $347,035
========= ======== ========
Liabilities
Deposits:
Demand, noninterest-bearing............................... $ 87,272 $101,188 $ 74,100
Savings................................................... 167,917 165,739 152,347
Time...................................................... 59,136 61,879 78,176
--------- -------- --------
Total deposits.......................................... 314,325 328,806 304,623
--------- -------- --------
Other liabilities........................................... 4,904 6,055 4,675
--------- -------- --------
Total liabilities....................................... 319,229 334,861 309,298
--------- -------- --------
Shareholders' equity
Common stock, par value $1; authorized 25,000,000
shares; issued 5,049,278, 2,519,379 and 2,510,085 shares
as of June 30, 1998, December 31, 1997 and June 30, 1997,
respectively and outstanding of 4,325,818, 2,185,609 and
2,201,265 shares as of June 30, 1998, December 31, 1997
and June 30, 1997, respectively*.......................... 5,049 2,519 2,510
Paid-in capital in excess of par value*..................... 2,292 4,589 4,533
Unrealized investment appreciation
(depreciation) net of deferred income taxes............... 54 62 (17)
Retained earnings........................................... 37,321 34,946 32,454
--------- -------- --------
44,716 42,116 39,480
Less: Common stock in treasury at cost -- 723,460, 333,770 and
308,820 shares as of June 30, 1998, December 31, 1997
and June 30, 1997, respectively*.......................... (4,186) (2,767) (1,743)
--------- -------- --------
Total shareholders' equity................................ 40,530 39,349 37,737
--------- -------- --------
Total liabilities and shareholders' equity................ $ 359,759 $374,210 $347,035
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
*- Restated to reflect the 2-for-1 stock split, effective August 3, 1998.
3
<PAGE>
<TABLE>
<CAPTION>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Unaudited
Six Months Ended
June 30
---------------------------
1998 1997
------------ -------------
<S> <C> <C>
Operating activities:
Net Income..................................................... $ 3,374 $ 2,848
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Provision for loan losses................................... 50 100
Provision for depreciation and amortization................. 683 548
Provision for writedown of other real estate owned.......... 25 0
Gain on sale of other real estate owned..................... (195) (94)
Loans originated for resale................................. (65,382) (21,610)
Proceeds from loans sold.................................... 68,363 23,001
Gain on sale of loans....................................... (355) (171)
Increase in deferred income taxes........................... 83 37
(Increase) decrease in interest receivable................. (37) 185
Increase in interest payable................................ 240 73
Other....................................................... (2,280) (268)
---------- ---------
Net cash provided by operating activities............... 4,569 4,649
---------- ---------
Investing activities:
Purchases of investment securities............................. (5,943) (18,007)
Proceeds from maturity and calls of fixed income securities.... 10,447 15,027
Loan repayments, net of loan originations...................... 1,020 15,514
Loans purchased (dealer loans)................................. (14,189) (17,801)
Purchases of premises and equipment............................ (835) (493)
Proceeds from disposition of other real estate owned........... 195 203
Capitalization of costs of other real estate owned............. 0 3
---------- ---------
Net cash used by investing activities.................... (9,305) (5,554)
---------- ---------
Financing activities:
Net decrease in demand and savings deposits.................... (11,738) (17,858)
Net (decrease) increase in time deposits....................... (2,743) 19,298
Dividends paid................................................. (999) (793)
Repayment of mortgage debt..................................... (13) (1,796)
Purchases of treasury stock.................................... (1,488) (204)
Proceeds from issuance of common stock......................... 173 94
---------- ---------
Net cash used by financing activities.................... (16,808) (1,259)
---------- ---------
Decrease in cash and cash equivalents.......................... (21,544) (2,164)
Cash and cash equivalents at beginning of period............... 53,182 38,454
---------- ---------
Cash and cash equivalents at end of period..................... $ 31,638 $ 36,290
========== =========
Supplemental cash flow information:
Income taxes paid...................................... $ 2,409 $ 1,303
Interest paid.......................................... $ 2,803 $ 3,385
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Quarter Ended Period Ended
June 30 June 30
1998 1997 1998 1997
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Net Income................................... $ 1,628 $ 1,390 $ 3,374 $ 2,848
Other comprehensive income:
Unrealized holding gains (losses) on
available-for-sale securities...... 5 187 (12) (25)
Deferred income tax (benefit) expense on
unrealized holding gains (losses) on
available for sale securities......... (1) (63) 4 9
-------- -------- -------- -------
Comprehensive net income............ $ 1,632 $ 1,514 $ 3,366 $ 2,832
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of June 30, 1998 and 1997, the consolidated statements of cash
flows for the six month periods ended June 30, 1998 and 1997 and the related
consolidated statements of income for the six and three month periods ended June
30, 1998 and 1997 are unaudited.
The preparation of financial statements in conformity with generally
accepted accounting principles 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 1997 Annual Report
incorporated in the 1997 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 1997 Annual Report
incorporated in the 1997 Form 10-K (Exhibit #13). Shares under option under the
Plan had a dilutive impact on net income per share for the six and three month
periods ended June 30, 1998 and 1997.
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
6
<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 Principals Board Opinion No. 15-Earnings
Per Share and is effective for financial statements for both interim and annual
periods ending after December 15, 1997, which essentially means that it is
effective for 1998. All prior periods have been restated.
In June 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") was issued. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. Comprehensive income includes net income
and several other items that current accounting standards require to be
recognized outside of net income, such as unrealized holding gains and losses on
available-for-sale investment securities in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Corporation adopted SFAS No. 130 on
January 1, 1998. When first applying SFAS No. 130, financial statements for
earlier periods that are provided for comparative purposes are required to be
restated to reflect application of the provisions of SFAS No. 130. SFAS No. 130
must be adopted at the beginning of an enterprises fiscal year.
In June 1997, Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") was issued. SFAS 131 replaces Statement of Financial Accounting Standard
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No.
131 requires public business enterprises to report certain information about
their operating segments in a complete set of financial statements to
shareholders. Such financial information is required to be reported on the
basis that it is used internally by the enterprise's chief operating decision
maker in making decisions related to resource allocation and segment
performance. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Corporation adopted SFAS No. 131 on
January 1, 1998. Comparative year information is required to be restated in
accordance with SFAS No. 131, if practicable. In 1998, the first year of
implementation, SFAS No. 131 is not required to be applied to interim period
financial statements and the Corporation has not done so.
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, considers 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 collectability of such loans.
7
<PAGE>
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 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, under these circumstances, the
Corporation's subsidiary The Bryn Mawr Trust Company (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 $3,333,000, $3,524,000 and
$4,055,000 at June 30, 1998, December 31, 1997 and June 30, 1997, 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 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 June 30, 1998 and December 31, 1997, no impaired
loans were measured using the present value of expected future cash flows
because all impaired loans were collateral dependent at these respective dates.
As of June 30, 1997, impaired loans measured using the present value of future
cash flows amounted to $153,000. Impaired loans measured by the value of the
loan's collateral amounted to $3,333,000, $3,524,000, and $3,902,000,
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 1998 or 1997 were
allocated from the existing reserve for loan losses. As of June 30, 1998,
December 31, 1997 and June 30, 1997, there were $3,216,000, $791,000 and
$1,002,000, respectively of impaired loans for which there is a related
allowance for loan losses. The total related allowance for loan loss at June
30, 1998, December 31, 1997 and June 30, 1997 was $350,000, $226,000 and
$197,000, respectively. Impaired loans for which no loan loss allowance was
allocated amounted to $72,000, $2,733,000 and $3,053,000 at June 30, 1998,
December 31, 1997 and June 30, 1997, respectively. Average impaired loans
during the first six months of 1998 and 1997, respectively, amounted to
$3,153,000 and $2,081,000, compared to $2,927,000 for the twelve months ended
December 31, 1997.
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 six month period ended June 30, 1998 or 1997.
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
8
<PAGE>
interest and principal. Subsequent income recognition would be recorded under
the existing terms of the loan. Based on the above criteria, during the first
six months of 1997, $409,000 in loan balances were removed from impaired status
and returned to accrual status. During 1998, no loans considered impaired were
removed from the impaired loan status.
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.
6. 2-for-1 Stock Split:
At its July 16, 1998 Board of Directors meeting, the Corporation's Board of
Directors authorized an increase in authorized shares from 5,000,000 shares to
25,000,000 shares. At the same meeting, the Board of Directors declared a 2-
for-1 stock split, to shareholders of record on August 3, 1998, to be issued on
September 1, 1998.
9
<PAGE>
7. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
<TABLE>
<CAPTION>
six months ended year ended
June 30, December 31,
1998 1997 1997
---------------- ------------
<S> <C> <C> <C>
Balance, Beginning of period $4,074 $4,182 $4,182
------ ------ ------
Charge-offs:
Consumer (83) (71) (237)
Commercial and industrial (18) 0 (196)
Real estate (26) (5) (0)
------ ------ ------
Total charge-offs (127) (76) (433)
------ ------ ------
Recoveries:
Consumer 3 14 23
Commercial and industrial 0 46 102
Real estate 64 6 0
------ ------ ------
Total recoveries 67 66 125
------ ------ ------
Net charge-offs (60) (10) (308)
Provision for loan losses 50 100 200
------ ------ ------
Balance, End of period $4,064 $4,272 $4,074
====== ====== ======
</TABLE>
10
<PAGE>
ITEM 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated results of operations of
Bryn Mawr Bank Corporation and its subsidiaries (the "Corporation") for the six
and three month periods ended June 30, 1998 and 1997, as well as the financial
condition of the Corporation as of June 30, 1998, December 31, 1997 and June 30,
1997. The Bryn Mawr Trust Company (the "Bank") and Tax Counselors of Bryn
Mawr, Inc. ("TCBM") are wholly-owned subsidiaries of the Corporation. During
the first quarter of 1998, the Bank formed a wholly-owned subsidiary, Insurance
Counselors of Bryn Mawr, Inc. ("ICBM") to sell insurance products to its
customers.
RESULTS OF OPERATIONS
- ---------------------
The Corporation reported net income of $3,374,000 for the six months ended
June 30, 1998, an 18% increase over $2,848,000 reported for the same period in
1997. During both 1998 and 1997, the Bank reported net gains on the sale of
other real estate owned ("OREO") of $195,000 and $94,000, respectively. During
1998, the Bank also had a recovery of $144,000 in disputed legal fees from a
prior loan settlement (the "Non-recurring Items"). Exclusive of these Non-
recurring Items, in both years, the Corporation's earnings grew by 13% over 1997
earnings. Per share data have been restated to reflect the effect of the 2-for-
1 stock split, to be paid on September 1, 1998 to shareholders of record on
August 3, 1998. Earnings per common share amounted to $.78, a 20% increase over
$.65 reported for the first six months of 1997. Earnings per common share,
assuming dilution were $.74 and $.62, respectively.
For the second quarter of 1998, the Corporation reported net income of
$1,628,000, a 17% increase over $1,390,000 reported for the second quarter of
1997. For the three months ended June 30, 1998 and 1997, earnings per common
share amounted to $.38 and $.32, respectively. Earnings per common share-
assuming dilution amounted to $.36 and $.30, respectively.
Exclusive of the after tax effect of the Non-recurring Items, the increase
in earnings, for the first six months of 1998 over the same period in 1997 may
be attributed to a number of factors, including an increase in net interest
income, up 13% over the first six months of 1997, a decrease in the provision
for loan losses, down 50% and an increase of 29% in other income, primarily due
to an 85% increase in net gains on the sale of loans, the result of increased
loan sale activity, a 39% increase in other service charges, commissions and
fees and a 21% increase in fees for trust services. Other expenses, exclusive
of the Nonrecurring Items, rose 18% for the first six months of 1998 compared to
the same period in 1997.
Higher average outstanding loan balances for the first six months of 1998
grew 4% from average daily outstanding loan balances for the first six months of
1997. Average outstanding investment security balances grew by 11%. The
increases in both average loan balances and average investment balances were
partially funded by an 18% decrease in average daily outstanding balances of
11
<PAGE>
federal funds sold and a 2% increase in average daily outstanding deposit
balances. The majority of the growth in average daily outstanding deposits
occurred in transaction based accounts. Average daily outstanding balances of
non-interest bearing demand deposit accounts and NOW accounts were up 11% and
12%, respectively. Due primarily to a 17% decrease in average outstanding CDs
during the first six months of 1998, compared to the same period of 1997, the
average cost of funds for the respective periods decreased 30 basis points, from
2.3% in 1997 to 2.0% in 1998. The result was an increase in the Bank's
annualized net interest margin, to 5.99% for the first six months of 1998
compared to 5.57% for the same period in 1997.
The prime rate remained unchanged at 8.5% from June 1997 to June 1998.
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.
While the Bank's prime rate did not change during the most recent twelve month
period, a 4% increase in higher average outstanding loan balances was primarily
responsible for a 10 basis point increase in the yield on earning assets for the
first six months of 1998, to 7.9% compared to 7.8% for the same period in 1997.
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 six months ended June 30, 1998, net interest income rose 13% to
$10,038,000 from $8,922,000 in 1997. Total interest income grew 6% for the
first six months of 1998, to $13,081,000 from $12,380,000 for the first six
months of 1997. Interest expense decreased 12% for the six months ended June
30, 1998, to $3,042,000 compared to $3,458,000 for the first six months of 1997.
The yield on earning assets for the first six months of 1998 was 7.9% compared
to 7.8% for the first six months of 1997 while the effective rate paid on
interest bearing deposits for the first six months of 1998 and 1997 was 2.6% and
3.0%, respectively.
Interest and fees on loans increased 6% from $10,838,000 for the first six
months of 1997 to $11,496,000 for the first six months of 1998. A 10 basis
point increase in the yield on the loan portfolio, at 8.3% for the first six
months of 1998, compared to 8.2% for the same period in 1997, combined with a 4%
increase in average outstanding loan balances from $258,299,000 for the first
six months of 1997 to $268,353,000 for the same period in 1998, are the primary
reasons for this increase in loan related interest and fee income.
Interest income on investments increased $102,000 or 10%, from $1,054,000
for the first six months of 1997 to $1,156,000 for the first six months of 1998.
Interest from U.S. Treasury securities decreased 6% from $396,000 for the first
six months of 1997 to $372,000 for the first six months of 1998. The primary
reason for this decrease was a $560,000 or 4% decrease in the average balance of
U.S. Treasury securities, from $13,465,000 during the first six months of 1997
to $12,905,000 for the comparable period in 1998. The decrease in U.S. Treasury
security balances was a result of investment maturities rather than sales.
Interest income on U.S. Government Agency securities increased 38% from $456,000
for the six months ended June 30, 1997
12
<PAGE>
to $630,000 at June 30, 1998. A 38% increase in the average balance of U.S.
Government Agency securities, from $14,963,000 for the six months ended June 30,
1997 to $20,589,000 for the same period in 1998, is primarily responsible for
the related increase in interest income. Interest income on obligations of
states and political subdivisions decreased by 31%, from $161,000 for the six
months ended June 30, 1997 to $111,000 for the same period in 1998. A decrease
of $1,811,000 or 27% in average outstanding balances of obligations of state and
political subdivisions, from $6,631,000 in average outstanding balances for the
first six months of 1997 down to $4,820,000 for the same period in 1998 is the
primary reason for this decrease. The overall yield on investment securities
was 5.8% for both the first six months of 1997 and 1998.
Interest expense on deposits decreased 12% or $416,000, to $3,042,000 for
the six months ended June 30, 1998 compared to $3,458,000 for the same period in
1997. The average cost of interest bearing deposits decreased 40 basis points,
from 3.0% at June 30, 1997 to 2.6% for the six months ended June 30, 1998. The
average interest bearing deposit balances decreased 1% to $229,045,000 at June
30, 1998 compared to $232,462,000 for the same period in 1997. The average
deposit mix changed for the first six months of 1998 compared to the same period
in 1997. Average non-transaction savings accounts increased 4%, while average
Market Rate Accounts decreased 1%. The Bank's average transaction based NOW
account and non-interest bearing demand deposit account balances increased 12%
and 11% 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. These CD balances matured during
the fourth quarter of 1997. A similar promotion was not offered at that time.
As a result of this run off of Premier CD funds in the final quarter of 1997,
the average daily outstanding balances of time deposits decreased 17% for the
first six months of 1998, compared to 1997. The annualized cost of CDs
decreased 30 basis points, from 5.3% for the first six months of 1997 to 5.0%
for the same period in 1998. With the exception of the average cost of Market
Rate Accounts increasing 10 basis points, the average cost of both savings and
NOW account balances each decreased by 10 basis points and 20 basis points,
respectively for the first six months of 1998 compared to the first six months
of 1997. The result was a 40 basis point decrease in the average cost of
interest bearing deposits, from 3.0% in 1997 to 2.6% for the first half of 1998.
The average cost of deposits, including non-interest bearing demand deposits
decreased from 2.3% for 1997, to 2.0% for the first six months of 1998.
For the first six months of 1998, the net interest margin increased to
5.99% from 5.57% for same period in 1997. The net interest margin is computed
exclusive of related loan fee income.
For the second quarter of 1998, net interest income of $5,056,000 was 13%
ahead of $4,479,000, reported for the second quarter of 1997. Total interest
income increased $315,000 or 5% from $6,255,000 for the second quarter of 1997
to $6,570,000 for the same period in 1998. Interest and fees on loans increased
$363,000 or 7% for the second quarter of 1998 over the second quarter of 1997.
Interest on federal funds sold, reflecting a decrease in average daily
outstanding balances, decreased $83,000 or 33%, reflecting both an increase in
average daily outstanding loan balances and the runoff of
13
<PAGE>
higher costing CDs in the fourth quarter of 1997. Interest income on U.S.
Government Agency Obligations and U.S. Treasury Securities increased $39,000 or
15% and $6,000 or 3%, respectively, while interest on obligations of states and
political subdivisions decreased by $18,000 or 23%. Interest on deposits
decreased $262,000 or 15%, due primarily to the decrease in average daily
outstanding CD balances, the effect of the maturity of higher costing CDs in the
fourth quarter of 1997.
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. 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, .63% of total loans at June 30, 1998 and the size of the loan
loss reserve, 1.46% of total loans at June 30, 1998, the loan loss provision was
reduced to $50,000 for the six months ended June 30, 1998, compared to $100,000
for the same period in 1997. The loan loss reserve amounted to 1.64% of
outstanding loans at June 30, 1997. Nonperforming loans have decreased 13% to
$1,014,000 as of June 30, 1998, down from $1,169,000 as of December 31, 1997 and
increased 7% from $946,000 in nonperforming loans as of June 30, 1997. The loan
loss reserve amounted to 401% of nonperforming loans as of June 30, 1998
compared to 452% as of June 30, 1997. 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 June 30, 1998.
OTHER INCOME
- ------------
Total other income of $7,151,000 for the six months ended June 30, 1998
increased 30% over $5,493,000 reported for the same period in 1997. Included in
these amounts were increases in net gains on the sale of OREO of $195,000
14
<PAGE>
and $94,000 for the first six months of 1998 and 1997, respectively. Exclusive
of these gains, total other income increased by 29% over 1997 levels.
Fees for trust services rose 21% from $3,762,000 for the first six months
of 1997 to $4,538,000 for the same period in 1998, due primarily to both the
acquisition of new Trust accounts and an increase in the market value of Trust
assets under management, up by 32%, to $1,992,774,000 at June 30, 1998 from
$1,513,284,000 as of June 30, 1997.
Due primarily to favorable residential mortgage interest rates,
encouraging borrowers to refinance existing higher rate mortgage loans, for the
six month period ended June 30, 1997, the Bank originated and sold $68,008,000
of residential mortgage loans in the secondary mortgage market, a 199% increase
over $22,756,000 of residential mortgage loans originated and sold during the
first six months of 1997. Deferred loan fees earned as income resulting from
the sale of residential mortgage loans in the secondary mortgage market amounted
to $186,000 or 27 basis points earned on the sale of $68,008,000 of residential
mortgage loans in the secondary mortgage market, compared to $115,000 or 50
basis points earned on the sale of $22,756,000 of residential mortgage loans in
the secondary mortgage market during the first six months of 1997. Related
gains on the same respective sales of residential mortgage loans in the
secondary mortgage market amounted to $355,000 or 52 basis points for the first
six months of 1998 compared to $130,000 or 57 basis points for the same period
in 1997. The result was a decline in the total basis points earned on the sale
of loans in the secondary mortgage market, from 108 basis points earned on the
sale of $22,756,000 in residential mortgages loans for the first six months of
1997 to 79 basis points on the sale of $68,008,000 in residential mortgage loans
for the first six months of 1998.
Income from other service charges, commissions and fees amounted to
$708,000 for the first six months of 1998, a 39% increase from $509,000 reported
for the first six months of 1997. Fee income, such as documentation preparation
fees, associated with the increase in residential mortgage loan sale activity
was primarily responsible for this increase in fee income.
Net gains on the sale of OREO amounted to $195,000 for the first six months
of 1997, a 107% increase over $94,000 earned during the first six months of
1997.
Other operating income increased 107% to $826,000 for the first six months
of 1998, compared to $400,000 for the same period in 1997. Fee income of
$347,000 and $24,000, earned by TCBM and ICBM, respectively was the primary
reason for this $426,000 increase in other operating income. Neither TCBM nor
ICBM were in operation during the first quarter of 1997.
Total other income increased $1,034,000 or 37% from $2,802,000 for the
second quarter of 1997 to $3,836,000 for the second quarter of 1998. Trust fees
increased 28% or $511,000, from $1,849,000 for the second quarter of 1997 to
$2,360,000 for the same period in 1998. Net gains on the sale of loans and
other service charges, commissions and fees, both directly related to the
increased volume of residential loan sales in the secondary market, were up 82%
and 47%, respectively. Net gains on sale of loans increased by $85,000 to
$189,000 for the second quarter of 1998 from $108,000 for the second quarter
15
<PAGE>
of 1997. Other service charges, commissions and fees increased by $93,000 to
$290,000 for the second quarter of 1998 from $197,000 for the second quarter of
1997. Other operating income increased by $315,000 or 116% from $272,000 for
the second quarter of 1997 to $587,000 for the second quarter of 1998. Income
earned by both TCBM and ICBM, totaling $279,000 for the second quarter of 1998
was primarily responsible for this increase. Neither company was in operation
during the second quarter of 1997
OTHER EXPENSES
- --------------
Total other expense increased 24% for the first six months of 1998 to
$12,025,000 from $10,062,000 for the first six months of 1997. Salaries and
wages grew $1,266,000 or 26%, from $4,866,000 for the six months ended June 30,
1997 to $6,132,000 for the same period in 1998. Of this increase, $704,000
relates to regular salary expense, representing a 17% increase in regular, part
time and overtime salaries during the first six months of 1998, compared to
1997. Included in 1998's regular salary expense were salaries for TCBM and ICBM
of $251,000. Both companies were not in operation during the first half of
1997. The Bank's regular salary expense increased 10% in the first six months
of 1998, compared to the same period in 1997. Staffing additions, occurring
during the previous twelve month period were primarily responsible for this
increase. Incentive salaries were up $562,000 or 78%, from $718,000 for the six
months ended June 30, 1997 to $1,281,000 for the same period in 1998. Incentive
salaries are primarily related to the profitability of both the Bank and its
related business segments.
Employee benefits expenses increased $158,000 or 17% from $907,000 for the
first six months of 1997 to $1,065,000 for the same period in 1998. The largest
increase in employee benefits expense occurred in the Bank's social security
expense, up $62,000 over 1997's similar expense. This was primarily due to an
increase in the social security expense related to an increase in the Bank's
incentive bonus, paid in January 1998, compared to a similar bonus paid in 1997.
Fringe benefits costs for TCBM and ICBM amounted to $27,000 for the first
quarter of 1998. There were no such expenses for the first quarter of 1997.
Occupancy expense decreased $21,000 or 3%, from $686,000 for the first six
months of 1997 to $665,000 for the first six months of 1998. The primary reason
for this decrease was a reduction of $61,000 in occupancy costs for the
Corporation, because of a payoff, in May of 1997, of a mortgage loan secured by
a lien on the offices used by the Bank's Investment Management and Trust
Division.
Furniture, fixtures and equipment expense increased $56,000 or 7% from
$770,000 for the first six months of 1997 to $826,000 for the same period in
1998. Growth in depreciation expense was the primary reason for this increase.
Other operating expenses increased $504,000 or 18% over the first six
months of 1997, from $2,833,000 for the first six months of 1997 to $3,337,000
for the first six months of 1998. The largest increase in other operating
expenses occurred in advertising expense, up $238,000 for the first six months
of 1998, compared to the same period in 1997. Partially offsetting this increase
was a $197,000 decrease in the Corporation's legal expense, primarily the result
of a recovery of $144,000 in disputed legal fees from a prior loan
16
<PAGE>
settlement during the first quarter of 1998. The cost of hiring temporary help
and programming services increased by $50,000, travel, meeting and related meals
expense were up by $56,000 and the cost of processing the Bank's merchant credit
card activity increased by $26,000. The cost of processing the merchant credit
card activity is offset by fees included in other income. Appraisal fees,
directly related to the level of residential mortgage loan origination and sale
activity, increased $50,000. The Corporation incurred a charge of $94,000,
related to the potential formation of a new subsidiary. TCBM and ICBM had
combined other operating expenses of $50,000. No such expenses were incurred
during the first quarter of 1997.
For the quarter, total other expenses increased 24% or $1,213,000 to
$6,369,000 for the quarter ended June 30, 1998 from $5,156,000 from the same
quarter in 1997. The majority of this increase occurred in salaries and wages,
up $795,000 or 33%. Of this increase, regular salaries, full time, part time
and overtime increased by $471,000 or 22%. Included in this increase were the
salaries for TCBM and ICBM, not in operation during the second quarter of 1997.
These salaries amounted to $132,000. Exclusive of these salary costs, the
Bank's regular salary cost increased by $339,000 or 16% for the second quarter
of 1998, compared to the second quarter of 1997. Salaries - other increased by
$323,000 or 96% for the quarter, reflecting increases in the Bank's incentive
and profitability bonus accruals. Included in the increase for the second
quarter of 1998 over the same quarter in 1997 was $111,000 in incentive salaries
for TCBM, which was not in operation in 1997. Employee benefits costs rose by
20% or $86,000 reflecting both increased staff in the Bank, as well as staffing
additions at TCBM and ICBM. Other operating expenses increased by $295,000 or
19%, from $1,553,000 for the second quarter of 1998 to $1,848,000 for the second
quarter of 1997. Advertising costs were up $91,000 from the second quarter of
1997 to the second quarter of 1998 and a charge of $94,000, related to the
potential formation of a new subsidiary was incurred during the second quarter
of 1998. No such charge was incurred during 1997.
APPLICABLE INCOME TAXES
- -----------------------
The Corporation's effective tax rate for the first six months of 1998 was
34%, compared to 33% for the first six months of 1997. A reduction in tax free
income is primarily responsible for the increase in the effective tax rate for
1998, compared to 1997.
FINANCIAL CONDITION
- -------------------
Total assets decreased 4% from $374,210,000 at December 31, 1997 to
$359,759,000 as of June 30, 1998. Total assets grew 4% from $347,035,000 as of
June 30, 1997.
Outstanding earning assets decreased 1% to $323,550,000 as of June 30, 1998
from $327,942,000 as of December 31, 1997. The Bank's loan portfolio increased
4%, to $279,041,000 at June 30, 1998 from $268,558,000 as of December 31, 1997.
Outstanding loans increased by 7%, from $261,274,000 as of June 31, 1997.
Outstanding consumer loans of $73,668,000 at June 30, 1998 decreased 4% and 9%,
respectively, from consumer loan outstanding balances of $76,963,000 as of
December 31, 1997 and $80,830,000 as of June 30, 1997. Competition from
automobile manufacturers for automobile loans and borrowers' ability to
refinance existing fixed rate home equity loans with lower rate
17
<PAGE>
residential mortgage loans were the primary reasons for the decrease in consumer
loan balances from both December 31, 1997 and June 30, 1997. Outstanding
commercial loans at June 30, 1998 were $87,318,000, a 16% increase from
outstanding commercial loan balances of $75,474,000 at December 31, 1997 and 21%
ahead of $72,023,000 at June 30, 1997. Outstanding real estate loans were
$118,055,000 at June 30, 1998, a 2% increase from $116,121,000 in outstanding
real estate loans at December 31, 1997 and a 10% increase over $107,631,000 in
outstanding real estate loans as of June 30, 1997.
The Bank's investment portfolio, having a market value of $36,124,000 at
June 30, 1998, decreased 11% from a market value of $40,666,000 at December 31,
1997 and 4% from $37,703,000 as of June 30, 1997.
The Corporation has chosen to include all of its investment securities in
the available for sale category. Investments in this category are reported at
the current market value with net unrealized gains or losses, net of the
deferred tax effect, being added or deducted from the Corporation's total equity
on the balance sheet. As of June 30, 1998, the investment portfolio had an
unrealized gain of $81,000, compared to an unrealized gain of $93,000 as of
December 31, 1997. The unrealized investment appreciation, net of deferred
income taxes, increased the Corporation's shareholders' equity on the balance
sheet by $54,000 as of June 30, 1998.
Federal funds sold amounted to $8,300,000 as of June 30, 1998, a 50% and
33% decrease from $16,600,000 as of December 31, 1997 and $12,300,000 as of June
30, 1997, respectively. The decrease in outstanding federal funds sold from
December 31, 1997 was primarily due to both an increase in outstanding loans and
a decrease in deposits during the first half of 1998. 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 $1,014,000 at June 30, 1998, a 15%
decrease from $1,194,000 at December 31, 1997 and a 57% decrease from
nonperforming assets of $2,357,000 at June 30, 1997. Nonperforming loans
decreased 13% to $1,014,000 at June 30, 1998 compared to nonperforming loans of
$1,169,000 at December 31, 1997 and increased 7% from $946,000 as of June 30,
1997. The remaining OREO balance of $25,000 was charged off during the second
quarter of 1998. Therefore, there was no OREO balance outstanding as of June
30, 1998, compared to $1,169,000 as of December 31, 1997 and $1,411,000 as of
June 30, 1997.
As of June 30, 1998 and 1997, 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 decreased 4% to $314,325,000 as of June 30, 1998 from
$328,806,000 as of December 31, 1997. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total
18
<PAGE>
average outstanding deposit balances increased 2% to $311,697,000 for the six
month period ended June 30, 1998 from $306,720,000 for the same period in 1997.
Although the amount of average total deposits remained relatively stable, the
mix of deposits shifted. Average savings balances increased 1% or $472,000 to
$40,313,000 for the first six months of 1998, compared to $39,841,000 for the
same period in 1997. Market Rate Account balances decreased 1% or $598,000 from
$45,522,000 in average daily outstanding balances for the six months ended June
30, 1997 to $44,924,000 for the same period in 1998. The Bank's transaction
based NOW Account and non-interest bearing demand deposit accounts both grew
over the first half 1997 average balances. Average outstanding NOW account
balances grew 12% or $8,671,000, from $73,945,000 for the first six months of
1997 to $82,616,000 for the same period in 1998. Non-interest bearing demand
deposit average outstanding balances grew 11% or $8,394,000 from $74,258,000 for
the six months ended June 30, 1997 to $82,652,000 for the same period in 1998.
The two year Premier CDs, offered during the first quarter of 1995, matured
during the first quarter of 1997. 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. These CD balances
matured during the fourth quarter of 1997. A similar promotion was not offered
at that time. As a result of this run off of Premier CD funds in the final
quarter of 1997, the average daily outstanding balances of time deposits
decreased 17% for the first six months of 1998 compared to 1997. The net result
was a decrease in the average outstanding CD balances, by $12,962,000 from
$74,154,000 in average outstanding balances for the first six months of 1997 to
$61,192,000 for the same period in 1998.
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.
19
<PAGE>
As of June 30, 1998, 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 $40,530,000,
or 11.2% of total assets, as of June 30, 1998, compared to total shareholders
equity of $39,349,000, or 10.5% of total assets, as of December 31, 1997. As of
June 30, 1997, shareholders' equity was $37,737,000, or 10.9% of total assets.
The Corporation's risk weighted Tier I capital ratio was 13.55% as of June 30,
1998 compared to 13.62% and 13.77% at December 31, 1997 and June 30, 1997,
respectively. The respective Tier II ratios were 14.80%, 14.87% and 15.03%,
respectively. At its July 16, 1998 Board of Directors meeting, the
Corporation's Board of Directors declared a 2-for-1 stock split, to shareholders
of record on August 3, 1998, to be issued on September 1, 1998. Earnings per
share and dividend per share data have been restated to reflect the effect of
the 2-for-one stock split. During the first half of 1998, the Corporation
declared its regular dividends of $0.23 per share, a 28% increase over $0.18 per
share declared during the first half of 1997.
In March 1997, the Corporation implemented a stock repurchase program with a
goal of repurchasing up to 5% of the then outstanding stock of the Corporation.
This one-year program was renewed in March of 1998 for an additional year. As
of June 30, 1998, the Corporation repurchased, reflecting the effect of the 2-
for-1 stock split, 121,900 shares of its stock at a cost of $2,716,000.
YEAR 2000
- ---------
The Corporation began its process of assuring that all computer systems and
applications are Year 2000 compliant in November 1996. The process involves
either modifying or replacing certain hardware and software as well as
communicating with external service providers to ensure they are also taking the
appropriate action to remedy their Year 2000 issues. Management expects to have
substantially all essential systems, hardware and software reviewed and
upgraded, if necessary for compliance, by year-end 1998. Management believes
that its level of preparedness is appropriate.
The Corporation estimates cumulative costs of the process to approximate
$250,000, which includes the cost of replacing or modifying hardware and
software. Purchased hardware and software will be capitalized and depreciated
in accordance with Corporation policy. Other costs related to the project will
be expensed as incurred.
The Bank is also assessing the impact, if any, the century date change may have
on its credit risk and loan underwriting. In connection with potential credit
risk related to the Year 2000 issue, the Bank is contacting its large commercial
loan customers regarding their level of preparedness for Year 2000. The costs
of the project and expected completion dates are based on management's best
estimates.
20
<PAGE>
PART II. OTHER INFORMATION
--------------------------
JUNE 30, 1998
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
- --------
NONE
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: August 7, 1998 By:/s/ Robert L. Stevens
--------------------- -----------------------
Robert L. Stevens
Chairman,
President & Chief
Executive Officer
Date: August 7, 1998 By:/s/ Joseph W. Rebl
---------------------- ----------------------
Joseph W. Rebl
Treasurer and
Assistant Secretary
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