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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee required] for the fiscal year ended
December 31, 1997 or
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee Required] for the transition period
from_______________ to________________
Commission file number 0-15261.
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BRYN MAWR BANK CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
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(State of other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number including area code) (610) 525-1700
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1 par value)
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period than the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
or Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
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The aggregate market value of shares of common stock held by non-affiliates of
Registrant (including fiduciary accounts administered by affiliates*) was
$106,348,081 on March 13, 1998.
As of March 13, 1998, 2,170,369 shares of common stock were outstanding.
Documents Incorporated by Reference: Parts I, II and IV - Portions of
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Registrant's Annual Report to Shareholders for the year ended December 31, 1997,
as indicated, Parts I and III - Definitive Proxy Statement of Registrant filed
with the Commission pursuant to Regulation 14A.
*Registrant does not admit by virtue of the foregoing that its officers and
directors are "affiliates" as defined in Rule 405 and does not admit that it
controls the shares of Registrant's voting stock held by the Trust Department of
its bank subsidiary.
The exhibit index is on pages 41 through 44. There are 128 pages in this report.
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PART I
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ITEM 1. BUSINESS
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GENERAL
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BRYN MAWR BANK CORPORATION
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Bryn Mawr Bank Corporation (the "Corporation"), hereinafter sometimes
referred to as the Registrant, was incorporated under the laws of the
Commonwealth of Pennsylvania on August 8, 1986. The Corporation is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "Act"). On January 2, 1987, under a Plan of Reorganization, the
Corporation acquired all of the issued and outstanding shares of The Bryn Mawr
Trust Company (the "Bank"), through an exchange of three shares of the
Corporation stock for each share of Bank stock issued.
THE BRYN MAWR TRUST COMPANY
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The Bank, the principal subsidiary of the Corporation, is a state chartered
bank subject to the Pennsylvania Banking Code of 1965, as amended, which was
incorporated under the laws of the Commonwealth of Pennsylvania on March 25,
1889. In addition, the Bank is a member of the Federal Reserve System and,
therefore, is subject to the laws and regulations which govern a Federal Reserve
member bank. The Bank is engaged in a general commercial and retail banking
business, providing basic banking services as well as a full range of trust
services.
TAX COUNSELLORS OF BRYN MAWR, INC.
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Tax Counsellors of Bryn Mawr, Inc. ("TCBM") was incorporated under the laws
of Pennsylvania on July 1, 1997. TCBM is a wholly owned subsidiary
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of the Corporation. TCBM offers tax planning services to clients in the general
market area of the Corporation.
INSURANCE COUNSELLORS OF BRYN MAWR, INC.
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Insurance Counsellors of Bryn Mawr, Inc. ("Insurance Counsellors") was
incorporated on December 30, 1997 as a wholly owned subsidiary of the Bank.
Insurance Counsellors began operations on February 1, 1998. The staff of
Insurance Counsellors sells insurance products, including all facets of
causality, property and allied insurance lines, as well as life insurance,
annuities, medical insurance and accident and health insurance for groups and
individuals.
OPERATIONS OF BRYN MAWR FINANCIAL SERVICES, INC. AND PROFIT RESEARCH CONSULTING,
INC. ARE DISCONTINUED.
Bryn Mawr Financial Services, Inc. ("BMFS") and Profit Research Consulting
Inc. ("PRC") were formed to provide counter-cyclical fee income to the
Corporation of a different nature than the predominately interest income earned
by the Bank. During 1992 the Corporation's management evaluated the financial
performance and the current and estimated future additional capital requirements
of these entities. Based on that evaluation, the Corporation's management
determined to dissolve PRC and discontinue the operations of BMFS. However, the
Corporation may again commence the operations of BMFS at a future time.
SUMMARY
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The Corporation will concentrate its resources to expand the Bank's market
penetration by providing superior banking services, including deposit, lending
and trust services, as well as other financial services, including tax planning
services through TCBM and insurance sales and services through Insurance
Counsellors, to its existing customers
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and obtain additional customers in its market in Montgomery, Delaware and
Chester counties of Pennsylvania and to successfully address the other
challenges in the Bank's ever changing competitive market.
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OPERATIONS
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BRYN MAWR BANK CORPORATION
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The Corporation had no active staff as of December 31, 1997 and conducted
no activities other than those activities through its subsidiaries, the Bank and
TCBM.
A complete list of directors and officers of the Corporation, as of March
2, 1998 is incorporated by reference to page 11 and 12 of the Corporation's
Annual Report to Shareholders for the year ended December 31, 1997.
THE BRYN MAWR TRUST COMPANY
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The Bank is engaged in general, commercial and retail banking business,
providing basic banking services, including the acceptance of demand, time and
savings deposits and the making of commercial, real estate and consumer loans
and other extensions of credit. The Bank also provides a full range of trust
services including estate administration, investment advisory services, pension
and profit sharing administration and personal financial planning, including tax
preparation. As of December 31, 1997, the market value of assets administered
by the Bank's Investment Management and Trust Division was $1,666,472,000. In
January 1996, the Bank formed Investment Counsellors of Bryn Mawr ("ICBM"), as
a division of the Bank's Investment Management and Trust Division. ICBM is
dedicated to managing investment portfolios for high net worth individuals and
employee benefit plans.
During 1997, residential mortgage interest rates decreased enough to make
refinancing attractive to borrowers. In 1996, residential mortgage interest
rates increased from 1995 levels causing a reduction in
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refinancing activity, compared to similar activity in 1995. As of March 2, 1998,
the Bank had no commissioned mortgage originators.
The Bank originated and sold $75,874,000 in residential mortgages to the
secondary market in 1997 compared to $55,276,000 originated and sold in 1996.
Net gains and loan fee income on such transactions amounted to $758,000 in 1997
compared to $615,000 in 1996. During 1995 the Bank originated and sold
$67,826,000 in residential mortgage loans, generating $918,000 in related net
gains and loan fee income.
The operations and data processing support for the banking services
provided by the Bank were supplied by Financial Institution Outsourcing, a
division of Mellon Bank, N. A. under a five-year servicing contract, which
expired on December 31, 1995 and which is incorporated by reference into the
Corporation's 10-K, filed with the Securities and Exchange Commission (the
"Commission") on March 26, 1991. In November 1993, Mellon Bank sold its
outsourcing division to FISERV, Inc., an outsourcing data processing company
located in Brookfield, IL. The Bank renegotiated its licensing and servicing
agreement with FISERV in 1994 for the in-house data processing systems, which
commenced operation during February 1996. This agreement is incorporated by
reference into the Corporation's 10-K, filed with the Commission on March 31,
1995.
At December 31, 1997, the Bank had 198 full time and 44 part time
employees, including 95 officers, equalling 220 full time equivalent staff.
TAX COUNSELLORS OF BRYN MAWR, INC.
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TCBM employs two CPAs (the "Tax Professionals"), having significant tax
planning and preparation background and formerly employed by a "Big Six"
accounting firm. The Tax professionals, on behalf of TCBM, provide tax
planning and consulting services to both TCBM's and the Bank's
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customer base. As a part of the formation of TCBM, a profit sharing agreement
was developed that allows the Tax Professionals to retain the net revenues
generated by existing clients brought to TCBM.
INSURANCE COUNSELLORS OF BRYN MAWR, INC.
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Insurance Counsellors was incorporated on December 30, 1997 as a wholly
owned subsidiary of the Bank. Insurance Counsellors began operations on
February 1, 1998. The staff of Insurance Counsellors sells insurance products,
including all facets of casualty, property and allied insurance lines, as well
as life insurance, annuities, medical insurance and accident and health
insurance for groups and individuals.
Insurance Counsellors employs two licensed insurance agents and supporting
staff, which have significant expertise about the sale and servicing of
insurance products. Insurance Counsellors' agents and staff provide a broad
scope of insurance sales and services to the Bank's clients and others.
Insurance Counsellors has entered into an agreement with The Simkiss Agency,
Inc., a duly licensed insurance agency to facilitate the offering of insurance
products by Insurance Counsellors, pursuant to which The Simkiss Agency, Inc.
will provide insurance support services, such as billing and collection of
premiums, monthly reports concerning insurance activities and customer policy
services to Insurance Counsellors and their clients.
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SOURCES OF THE CORPORATION'S REVENUE
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The following table shows the percentage of consolidated revenues by major
source generated by the Bank from the activities indicated below.
Year Ended December 31,
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1997 1996 1995 1994 1993
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Commercial Loans 17% 18% 16% 14% 12%
Mortgage and Construction Loans 15 16 16 15 16
Consumer Loans 25 25 25 25 24
Home Equity/Line of Credit 2 3 3 3 2
Securities 6 7 10 13 12
Federal Funds Sold 3 1 2 1 1
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Total Interest Income 68 70 72 71 67
Trust Services 21 17 17 16 15
Other Income * 11 13 11 13 18
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Total Revenues * 100% 100% 100% 100% 100%
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* Revenues were generated by the Bank and TCBM in 1997. Revenues generated by
TCBM aggregated .4% in 1997. There were no revenues generated by BMFS and PRC
during 1997, 1996, 1995, 1994 or 1993. All revenues were generated by the Bank
during 1996, 1995, 1994 and 1993.
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STATISTICAL INFORMATION
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The statistical information required in this Item I is incorporated by
reference to the information appearing in Corporation's Annual Report to
Shareholders for the year ended December 31, 1997, as follows:
Disclosure Required by Industry Reference to the Corporation's
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Guide 3 1997 Annual Report
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(Financial Section)
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I. Distribution of Assets, Liabilities
and Stockholders Equity; Interest
Rates and Interest Differential
A. Average balance sheets, interest-
income and expense; average rates
earned/paid . . . . . . . . . . . . Analyses of Interest Rates and
Interest Differential (page 5)
B. Rate/Volume Differentials . . . . . Rate/Volume Analyses (page 6)
C. Non-Accrual Policy. . . . . . . . . Loan Portfolio and Non-
performing Asset Analysis
(page 10)
D. Interest Rate Sensitivity
Analysis. . . . . . . . . . . . . . Interest Rate Sensitivity
Analysis (page 13)
II. Investment Portfolio
A. Book Values . . . . . . . . . . . . Notes to Consolidated Financial
Statements, Note 3 (page 23)
B. Maturities. . . . . . . . . . . . . Notes to Consolidated Financial
Statements, Note 3 (page 23)
III. Loan Portfolio
A. Types of Loans. . . . . . . . . . . Loan Portfolio (page 10)
B. Maturities and Sensitivity to
changes in Interest Rates . . . . . Loan Portfolio - Maturity
distribution (page 10)
Interest Rate Sensitivity
Analysis (page 13)
C. Non-Performing assets . . . . . . . Non-Performing Assets (page 13)
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Disclosure Required by Industry Reference to the Corporation's
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Guide 3 1997 Annual Report
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(Financial Section)
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IV. Summary of Loan Loss Experience
A. Analysis of Loss Experience . . . Allowance for Possible Loan
Losses (page 7)
B. Allocation of Allowance for
Loan Losses . . . . . . . . . . . Allocation of the Allowance
for Possible Loan Losses
(page 7)
V. Deposits
A. Average Deposits . . . . . . . . . Average Daily Balances of
Deposits (Page 11)
B. Maturity tables and outstanding
balances, deposits $100,000 or
more . . . . . . . . . . . . . . . Maturity of Certificates of
Deposit of $100,000 or
Greater (page 12)
VI. Return on Equity and Assets . . . . . . Selected Financial Data
(page 1)
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COMPETITION
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The Corporation's principal purpose is to hold the stock of the Bank and
the Corporation's other subsidiaries. Therefore, there is presently no market
area nor competition for the Corporation since it does not conduct competitive
business activity other than through its subsidiaries.
The Bank's market area is primarily located in portions of Delaware,
Montgomery and Chester Counties in southeastern Pennsylvania. The greatest
concentration of activity is within a limited radius of Bryn Mawr, Pennsylvania,
the site of the Bank's main banking office. The Bank has four full service
branch offices located in Havertown, Wayne, Wynnewood and Paoli, Pennsylvania.
In addition, there are five limited service facilities located in life care
communities in Waverly Heights, Martins Run, the Quadrangle, Beaumont at Bryn
Mawr and Bellingham and two limited service branches located in Radnor Corporate
Center and One Tower Bridge in West Conshohocken. The Bank's Investment
Management and Trust Division leases facilities at Two Tower Bridge. There is
also an automatic teller machine location at Villanova University. All
facilities are located in either Montgomery, Chester or Delaware Counties.
The banking business is highly competitive and the Bank competes not only
with other commercial banks but it also experiences competition from savings and
loan associations and credit unions for deposits and loans as well as from
consumer finance companies, mortgage companies, insurance companies, stock
brokerage companies and other entities providing one or more of the services and
products offered by the Bank. All of those organizations must be considered
competitors of the Bank.
TCBM's market area is primarily located in southeastern Pennsylvania, New
Jersey and Delaware, although the nature of tax consulting services
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permits TCBM to provide its services anywhere in the United States. TCBM leases
office space in Ardmore Pennsylvania. TCBM's primary competition is from
accounting and tax preparation firms.
Insurance Counsellors' market area is primarily located in southeastern
Pennsylvania, New Jersey and Delaware, although they are able to market and sell
insurance products and services anywhere in the United States. Insurance
Counsellors is housed in the main office of the Bank, located at 801 Lancaster
Avenue, Bryn Mawr, Pennsylvania. Insurance Counsellors' primary competition is
from insurance agencies and insurance agents.
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SUPERVISION AND REGULATION
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Bank holding companies, such as the Corporation, and its subsidiaries,
including the Bank, are extensively regulated under both federal and state law.
To the extent that the following information describes statutory provisions and
regulations which apply to the Corporation and its subsidiaries, it is qualified
in its entirety by reference to those statutory provisions and regulations.
Regulation of the Corporation
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The Bank Holding Company Act
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The Corporation, as a bank holding company, is regulated under the Bank
Holding Company Act of 1956, as amended (the "Act"). The Act limits the
business of bank holding companies to banking, managing or controlling banks,
performing certain servicing activities for subsidiaries and engaging in such
other activities as the Federal Reserve Board may deter mine to be closely
related to banking. The Corporation and its subsidiaries are subject to the
supervision of the Federal Reserve Board and the Corporation is required to file
with the Federal Reserve Board an annual report and such additional information
as the Federal Reserve Board may require pursuant to the Act and the regulations
which implement the Act. The Federal Reserve Board also conducts inspections of
the Corporation and each of its non-banking subsidiaries.
The Act prohibits the Federal Reserve Board from approving a bank holding
company's application to acquire a bank or bank holding company located outside
the state in which the operations of its banking
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subsidiaries are principally conducted, unless such acquisition is specifically
authorized by statute of the state in which the bank or bank holding company to
be acquired is located or the bank is failing. Pennsylvania law permits bank
holding companies located in any state to acquire Pennsylvania banks and bank
holding companies, provided that the home state of the acquiring company has
enacted "reciprocal legislation". In this context, reciprocal legislation is
generally defined as legislation that authorizes Pennsylvania bank holding
companies to acquire banks or bank holding companies located in another state on
terms and conditions substantially no more restrictive than those applicable to
such an acquisition in Pennsylvania by a bank holding company located in the
other state.
The Act requires each bank holding company to obtain prior approval by the
Federal Reserve Board before it may acquire (i) direct or indirect ownership or
control of more than 5% of the voting shares of any company, including another
bank holding company or a bank, unless it already owns a majority of such voting
shares, or (ii) all, or substantially all, of the assets of any company. The
Act provides that the Federal Reserve Board shall not approve any acquisition by
a bank holding company of more than 5% of the voting shares or substantially all
of the assets of a bank located outside of the state in which the operation of
the holding company's bank subsidiaries are principally conducted, unless such
acquisition is specifically authorized by a statute of the state in which the
bank whose shares are to be acquired is located.
The Act also prohibits a bank holding company from engaging in, or from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company engaged in non-banking activities unless
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the Federal Reserve Board, by order or regulation, has found such activities to
be so closely related to banking or to managing or controlling banks as to be
appropriate. The Federal Reserve Board has by regulation determined that
certain activities are so closely related to banking or to managing or
controlling banks, so as to permit bank holding companies, such as the
Corporation, and its subsidiaries formed for such purposes, to engage in such
activities, subject to obtaining the Federal Reserve Board's approval in certain
cases. These activities include operating a mortgage, consumer finance, credit
card or factoring company, servicing and brokering loans and other extensions of
credit, providing certain investment and financial consulting advice, leasing
personal property, providing certain bookkeeping or financially oriented data
processing services, acting as an insurance agent for certain types of credit-
related insurance and discount brokerage.
The Act further provides that the Federal Reserve Board shall not approve any
acquisition that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any part of the country, or that in any other manner would be in
restraint of trade, unless the anti-competitive effects of the proposed
transactions are clearly outweighed by the public interest and the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served.
Under the Act, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension or
provision of credit, lease or sale of property or furnishing any service to a
customer on the condition that the customer provide additional credit or service
to the bank, to its bank holding
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company or any other subsidiaries of its bank holding company or on the
condition that the customer refrain from obtaining credit or service from a
competitor of its bank holding company. Further, the Bank, as a subsidiary bank
of a bank holding company, such as the Corporation, is subject to certain
restrictions on any extensions of credit it provides to the Corporation or any
of its non-bank subsidiaries, investments in the stock or securities thereof,
and on the taking of such stock or securities as collateral for loans to any
borrower.
In addition, the Federal Reserve Board may issue cease and desist orders
against bank holding companies and non-bank subsidiaries to stop actions
believed to present a serious threat to a subsidiary bank. The Federal Reserve
Board also regulates certain debt obligations and changes in control of bank
holding companies.
Under Federal Reserve Board policy, a bank holding company is expected to act
as a source of financial strength to each of its subsidiary banks and to commit
resources, including capital funds during periods of financial stress, to
support each such bank. Although this "source of strength" policy has been
challenged in litigation, the Federal Reserve Board continues to take the
position that it has the authority to enforce it. Consistent with its "source
of strength" policy for subsidiary banks, the Federal Reserve Board has stated
that, as a matter of prudent banking, a bank holding company generally should
not maintain a rate of cash dividends unless its net income available to common
shareholders has been sufficient to fund fully the dividends, and the
prospective rate of earnings retention appears to be consistent with the
company's capital needs, asset quality and overall financial condition.
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The Corporation is a legal entity separate and distinct from its subsidiary
bank and its nonbank subsidiary. Accordingly, the right of the Corporation, and
consequently the right of creditors and shareholders of the Corporation, to
participate in any distribution of the assets or earnings of any subsidiary is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of the Corporation in its capacity as creditor may be
recognized. The principal source of the Corporation's revenue and cash flow is
dividends from its subsidiary bank. There are legal limitations on the extent
to which its subsidiary bank can finance or otherwise supply funds to the
Corporation and its nonbank subsidiary.
The Act currently permits bank holding companies from any state to acquire
banks and bank holding companies located in any other state, subject to certain
conditions, including certain nationwide and state-imposed concentration limits.
Effective June 1, 1997, the Corporation's subsidiary Bank will have the ability,
subject to certain restrictions, including state opt-out provisions, to
consolidate with one another or to acquire by acquisition or merger branches
outside their home states. States may affirmatively opt-in to permit these
transactions earlier, which Delaware, New Jersey and Pennsylvania, among other
states, have done. The establishment of new interstate branches also will be
possible in those states with laws that expressly permit it. Interstate
branches will be subject to certain laws of the states in which they are
located. Competition may increase further as banks branch across state lines
and enter new markets.
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Financial Institutions Reform, Recovery and Enforcement Act
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Following enactment by the United States Congress, on August 9, 1989, the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
became law. Although the more significant provisions of FIRREA relate to
promoting the economic viability of thrift institutions through more stringent
capital requirements and changes to the regulatory structure of such
institutions, FIRREA also contains provisions that directly affect banks and
bank holding companies, such as the Corporation. First, FIRREA abolished the
Federal Savings and Loan Insurance Corporation and required the Federal Deposit
Insurance Corporation (the "FDIC") to establish two separate funds, the Bank
Insurance Fund ("BIF") to insure banks and the Savings Association Insurance
Fund ("SAIF") to insure savings and loan associations. Second, FIRREA amended
the Act to permit bank holding companies to acquire thrift institutions. Prior
to FIRREA, bank holding companies were permitted to acquire only failing thrift
institutions. Finally, FIRREA enhanced the authority of the regulatory
authorities over financial institutions, including banks and bank holding
companies, to regulate more effectively with the entire structure of a bank
holding company.
Federal law also grants to federal banking agencies the power to issue cease
and desist orders when a depository institution or a bank holding company or an
officer or director thereof is engaged in or is about to engage in unsafe and
unsound practices. The Federal Reserve Board may require a bank holding company,
such as the Corporation, to discontinue certain of its activities or activities
of its other subsidiaries, other than the Bank, or divest itself of such
subsidiaries if such activities cause serious risk to the Bank and are
inconsistent with the Bank Holding Company Act or other applicable federal
banking laws.
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Federal Deposit Insurance Corporation Improvement Act of 1991
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The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
is designed to reform and provide funding for the deposit insurance system by,
among other things, requiring early intervention and closure of troubled
institutions by the regulatory authorities and the resolution of failed
institutions on the least-cost basis.
The FDICIA substantially alters the deposit insurance assessment process.
The requirement that the FDIC provide at least sixty (60) days notice before
requiring changes to the semiannual insurance assessment has been removed and
the FDIC has the ability to change deposit insurance assessment rates much more
rapidly than in the past. FDICIA grants the FDIC the authority to impose
special "emergency" assessments on member banks at any time if necessary to pay
interest or principal on borrowings or for other appropriate purposes. The
FDICIA also requires the FDIC to establish a risk-based assessment system for
the deposit insurance funds. In addition, the FDICIA establishes capital
categories, such as, "well-capitalized", adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Under the guidelines currently issued by the regulators, the
Bank is considered "well-capitalized".
FDICIA also requires the regulators to place a financial institution under
more intense scrutiny if its capital falls into a lower capital category. In
addition, FDICIA restricts the liquidity that is available, through the Federal
Reserve discount window, to troubled financial
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institutions and increases the scope of the regulatory authorities supervisory
powers over financial institutions, including the Bank and Corporation.
Pursuant to federal law, federal regulatory authorities review the
performance of the Corporation and their subsidiaries in meeting the credit
needs of the communities served by the Bank. The applicable federal regulatory
authority considers compliance with this law in connection with applications
for, among other things, approval of branches, branch relocations and
acquisitions of banks and bank holding companies.
Pennsylvania Laws Affecting the Corporation
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Pennsylvania Anti-Takeover Legislation
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The Corporation is also subject to the Pennsylvania Business Corporation Law
of 1988, as amended and the general business and other laws of the Commonwealth
of Pennsylvania regulating corporations.
The Pennsylvania Legislature passed the Pennsylvania Anti-Takeover Law Act 36
of the 1990 Pennsylvania Legislature ("Act 36") on April 27, 1990 which adds
additional provisions to and amends the law of Pennsylvania concerning business
corporations (the "Corporation Law"). Specifically, Act 36 (i) modifies and
limits the fiduciary obligations of a corporation's directors, withholds voting
rights from control shares of corporation stock until consent of the
Corporation's independent shareholders is obtained at a shareholders meeting,
prevents "green mail" by providing for disgorgement of certain profits by a
control person or
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group within eighteen (18) months after an attempt to acquire control of a
corporation. Act 36 also provides for severance compensation for certain
terminated employees following control share acquisitions, and regulates the
effect of certain business combinations on labor contracts.
Act 36, which is the Legislature's response to the large volume of hostile
takeovers over recent years, contains provisions which permitted a corporation's
board of directors to "opt-out" of certain provisions of the Act by explicitly
amending the corporation's by-laws on or before July 26, 1990. On July 20,
1990, the Corporation's Board amended the Corporation's By-Laws to explicitly
opt-out of the provisions of Act 36 which modify and limit a director's
fiduciary duty to the Corporation, withhold voting rights from "control shares"
of the Corporation stock, and provide for disgorgement of certain profits on
certain shares of the Corporation stock by a control person or group within
eighteen months after an attempt to acquire the Corporation's stock. Because
the Corporation's Board of Directors opted out of the provisions of Act 36
concerning fiduciary duty, control share acquisitions, and disgorgement of
profits, the severance compensation and labor contract provisions of Act 36 are
inapplicable to the Corporation.
The Corporation's Board opted-out of those provisions of the Act by amending
the Corporation's By-Laws because it believed and continues to believe that
those provisions of the Act were not in the best economic interests of the
---
Corporation's shareholders. In addition, the Board believes that, without those
provisions of Act 36, the Board has sufficient flexibility under the applicable
law to protect the interest of the shareholders. As outlined in the
Corporation's definitive proxy statement for the 1992 shareholders' meeting, the
Board of Directors
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recommended that the Corporation's shareholders ratify and approve the amendment
to the Corporation's By-Laws opting out of Act 36.
Regulation of the Bank
----------------------
The Corporation's Pennsylvania state chartered Bank, The Bryn Mawr Trust
Company, became a member of the Federal Reserve System in May 1995 and is
regulated and supervised by the Pennsylvania Department of Banking (the
"Department of Banking") and the Federal Reserve Board. These agencies
regularly examine the Bank's reserves, loans, investments, management practices
and other aspects of its operations and the Bank must furnish periodic reports
to these agencies.
Department of Banking and Federal Reserve Board Regulations
- -----------------------------------------------------------
The Bank's operations are subject to certain requirements and restrictions
under state and federal laws, including requirements to maintain reserves
against deposits, limitations on the interest rates that may be paid on certain
types of deposits, restrictions on the types and amounts of loans that may be
granted and the interest that may be charged thereon, limitations on the types
of investments that may be made and the types of services which may be offered.
Various consumer laws and regulations also affect the operations of the Bank.
These regulations and laws are intended primarily for the protection of the
Bank's depositors and customers rather than holders of the Corporation's stock.
As a bank incorporated under and subject to Pennsylvania banking laws and a
member bank of the Federal Reserve System, the Bank must obtain the prior
approval of the Department of Banking and the Federal Reserve
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authorities before establishing a new branch banking office. Depending on the
type of bank or financial institution, a merger of banks located in Pennsylvania
are subject to the prior approval of one or more of the following: the
Department of Banking, the FDIC, the Federal Reserve Board and the Office of the
Comptroller of the Currency. An approval of a merger by the appropriate bank
regulatory agency would depend upon several factors, including whether the
merged institution is a federally insured state bank, a member of the Federal
Reserve System, or a national bank. Additionally, any new branch expansion or
merger must comply with geographical branching requirements provided by state
law. The Pennsylvania Banking Code permits Pennsylvania banks to establish
branches anywhere in the state.
The Bank is insured by the FDIC, which currently insures the Bank's deposits
to a maximum of $100,000 per deposit. For this protection, each insured bank
pays a semiannual statutory insurance assessment and is subject to certain rules
and regulations of the FDIC. The amount of FDIC assessments paid by individual
insured depository institutions, such as the Bank, is based on their relative
risk as measured by regulatory capital ratios and certain other factors. Under
this system, in establishing the insurance premium assessment for each bank, the
FDIC will take into consideration the probability that the deposit insurance
fund will incur a loss with respect to an institution, and will charge an
institution with perceived higher inherent risks a higher insurance premium.
The FDIC will also consider the different categories and concentrations of
assets and liabilities of the institution, the revenue needs of the deposit
insurance fund, and any other factors the FDIC deems relevant. Under existing
regulations the Bank, as well capitalized financial institution, in 1997 paid
aggregate FDIC insurance premiums of $36,000.
22
<PAGE>
A significant increase in the assessment rate or a special additional assessment
with respect to insured deposits could have an adverse impact on the results of
operations and capital levels of the Bank or the Corporation.
Deposit Insurance Assessment
As a "well capitalized" financial institution the Bank was not assessed any
BIF deposit premiums in 1996 by the FDIC. The Deposit Insurance Act of 1996
(the "Deposit Act") was enacted on September 30, 1996 to recapitalize the SAIF
and requires banks, such as the Bank, which are well capitalized and insured by
the BIF to share the burden of repaying certain outstanding bonds issued by SAIF
in the late 1980s to address the savings and loan crisis. The Deposit Act
mandates that the Bank, and the other BIF insured financial institutions,
starting in 1997 must pay as a special deposit assessment of 4.2 basis points of
its deposits until 2000 and then a special deposit insurance assessment of 2.4
basis points of its deposits from 2000 until 2017. The Bank estimates that its
BIF insurance premium for 1997 will be $40,000.
Regulation of the Corporation-
Government Monetary Policies
----------------------------
The earnings and operations of the Corporation and its subsidiaries are
affected by the policies of regulatory authorities and legislative changes; in
particular, the policies of the Federal Reserve Board in regulating the money
supply and interest rates. Among the instruments used by the Federal Reserve
Board to implement its objectives are open-market operations in U.S. Government
securities, changes in the discount rate for member bank borrowings, changes in
reserve requirements against
23
<PAGE>
bank deposits, and changes with respect to regulations affecting certain
borrowing by banks and their affiliates.
The monetary and fiscal policies of the Federal Reserve Board and the other
regulatory agencies have had, and will probably continue to have, an important
impact on the operating results of the Bank through their power to implement
national monetary policy in order to, among other things, curb inflation or
combat a recession. The monetary policies of the Federal Reserve Board may have
a major effect upon the levels of the Bank's loans, investments and deposits
through the Federal Reserve Board's open market operations in United States
government securities, through its regulation of, among other things, the
discount rate on borrowing of depository institutions, and the reserve
requirements against depository institution deposits. It is not possible to
predict the nature and impact of future changes in monetary and fiscal policies.
The earnings of the Bank and therefore, of the Corporation are affected by
domestic economic conditions, particularly those conditions in the trade area as
well as the monetary and fiscal policies of the United States government and its
agencies.
The Federal Reserve Board also has authority to prohibit a bank holding
company from engaging in any activity or transaction deemed by the Federal
Reserve Board to be an unsafe or unsound practice. The payment of dividends
could, depending upon the financial condition of the Bank or Corporation, be
such an unsafe or unsound practice and the regulatory agencies have indicated
their view that it generally would be an unsafe and unsound practice to pay
dividends except out of current operating earnings. The ability of the Bank to
pay dividends in the
24
<PAGE>
future is presently and could be further influenced, among other things, by
applicable capital guidelines discussed below or by bank regulatory and
supervisory policies. The ability of the Bank to make funds available to the
Corporation is also subject to restrictions imposed by federal law. The amount
of other payments by the Bank to the Corporation is subject to review by
regulatory authorities having appropriate authority over the Bank or Corporation
and to certain legal limitations.
The passage of additional legislation by Congress, similar to FIRREA or
FDICIA, authorizing additional continuing legal and regulatory supervision of
financial institutions, requiring additional disclosure concerning deposit
transactions and permitting more rapid increases in deposit insurance premiums
may increase the cost and the operational expenses even for efficiently run and
well-capitalized financial institutions and may adversely affect the profit
margins of the Bank and the Corporation.
Risk Based Capital Guidelines
- -----------------------------
The Federal Reserve Board has promulgated certain "Risk Based Capital
Guidelines" which more narrowly define bank capital, as it relates to assets,
than do prior regulatory guidelines. Under the new guidelines, various types of
Corporation assets are assigned risk categories and weighted based on their
relative risk. In addition, certain off balance sheet items are translated into
balance sheet equivalents and also weighted according to their potential risk.
The sum of both of these asset categories, referred to as Total Risk Weighted
Assets, is then compared to the Corporation's total capital, providing a Tier I
Capital Ratio, under the new guidelines. A Tier II capital ratio is also
25
<PAGE>
computed for the Corporation, adding an allowable portion of the loan loss
reserve to capital. Both the Tier I and Tier II ratios of the Corporation are in
excess of those minimum capital ratios required as of December 31, 1997 by the
regulators. The focus of the guidelines is to measure the Corporation's capital
risk. The guidelines do not explicitly take into account other risks, such as
interest rate changes or liquidity.
The Bank in its normal business originates off-balance sheet items, such as
outstanding loan commitments and standby letters of credit. The Bank makes loan
commitments to borrowers to assure the borrower of financing by the Bank for a
specified period of time and/or at a specified interest rate. The obligation to
the Bank, pursuant to an unfunded loan commitment, is limited by the terms of
the commitment letter issued by the Bank to each borrower. The Bank carefully
reviews outstanding loan commitments on a periodic basis. A standby letter of
credit is an instrument issued by the Bank which represents an obligation to
make payments on certain transactions of its customers. The Bank carefully
evaluates the creditworthiness of each of its letter of credit customers. The
Corporation carefully monitors its risks as measured by the Risk Capital
Guidelines and seeks to adhere to the Risk Capital Guidelines.
Governmental Policies and Future Legislation
--------------------------------------------
From time to time, various proposals are made in the United States Congress
as well as Pennsylvania legislature and by various bank regulatory authorities
which would alter the powers of, and place restrictions on, different types of
bank organizations. Among current
26
<PAGE>
proposals of significance to the Corporation or its subsidiaries are the
continued liberalization of the restrictions on the acquisition of out-of-state
banks by bank holding companies, the expansion of the powers of banks and thrift
institutions, the liberalization of the restrictions upon the activities in
which bank holding companies may engage, the imposition of limitations on
interest rates and service charges, certain consumer legislation and the
requirement to provide certain basic banking services. It is impossible to
predict whether any of the proposals will be adopted and the impact, if any, of
such adoption on the business of the Corporation or its subsidiaries, especially
the Bank.
Subsidiaries of The Corporation and Bank
- ----------------------------------------
Corporation Subsidiaries
BMFS is an inactive wholly owned subsidiary of the Corporation, but is
subject to regulation and examination by the Federal Reserve Board. the Federal
Reserve Board.
TCBM is a wholly owned subsidiary of the Corporation, which provides tax
planning and tax consulting services, and is subject to regulation and
inspection by the Federal Reserve Board. Please refer to pages 4 and 5 of this
Form 10-K for additional information about TCBM.
Bank Subsidiary
Insurance Counsellors is a wholly owned subsidiary of the Bank, which
sells insurance products, including all facets of casualty, property and allied
insurance lines, as well as life insurance, annuities, medical insurance,
accident and health insurance for groups and individuals and is subject to
regulation and examination by the
27
<PAGE>
Pennsylvania Insurance Department and the Pennsylvania Department of Banking.
Please refer to page 5 of this Form 10-K for additional information about
Insurance Counsellors.
28
<PAGE>
ITEM 2. PROPERTIES
-------------------
The headquarters of the Corporation and the main office of the Bank are
located in a three story stone front office building, consisting of
approximately 37,000 net usable square feet, located at the main intersection of
Bryn Mawr, Pennsylvania, at Lancaster Avenue and Bryn Mawr Avenue. The main
office of the Bank has been located in Bryn Mawr since its founding in 1889. The
Corporation acquired two additional properties during 1988, that is (i) a
property contiguous to the Bank's main office and (ii) a property at 10 Bryn
Mawr Avenue to house the Bank's Investment Management and Trust Division. The
first property which is contiguous to the Bank's main office, houses an expanded
drive-up facility and a new meeting room and was subject to a mortgage as
outlined in Note 6 to the Corporation's financial statements, on page 31 of its
1996 Annual Report. The second property became the location of the Bank's
Investment Management and Trust Division in mid-December, 1989. A mortgage loan
on the property at 10 Bryn Mawr Avenue, Bryn Mawr, Pennsylvania was paid off in
March, 1997. The real property owned by the Corporation and the Bank, other than
that contiguous to the Bank's main office, is free and clear of all liens and
encumbrances. Below is a schedule of all properties owned or leased by the
Corporation or its subsidiaries.
The Bank:
- ---------
Date Acquired
Current Banking Office Address or Opened
- ---------------------- ------- -------------
Main Office and Principal 801 Lancaster Avenue 1889
Place of Business (owned) Bryn Mawr, PA 19010
Branch Office/Operations 330 E. Lancaster Avenue 1985
Center (owned) Wayne, PA 19087
Branch Office/Admin. 18 W. Eagle Road 1987
Office (owned) Havertown, PA 19083
29
<PAGE>
Date Acquired
Current Banking Office Address or Opened
- ---------------------- ------- ---------------
Branch Office (owned) 312 E. Lancaster Avenue 1979
Wynnewood, PA 19096
Branch Office (owned) N.E. Corner of Lancaster 1986
and Greenwood Avenues
Paoli, PA 19301
Branch Office (leased) The Quadrangle (1) 1989
month to month basis 3300 Darby Road
Haverford, PA 19041-1095
Branch Office (leased) Waverly Heights, Ltd. (1) 1986
month to month basis Life Care Community
Gladwyne, PA 19035
Branch Office (leased) Martins Run (1) 1987
month to month basis Life Care Community
11 Martins Run
Media, PA 19063
Branch Office (leased) Bellingham (1) 1991
through October 31, 1998 1615 East Boot Road
West Chester, PA 19380
Temporary Agency Remote Villanova University 1969
Facility Campus (2)
Villanova, PA 19085
Branch Office (leased) Radnor Corporate Center (3) 1990
through December 18, 1998 Three Radnor Corporate Center
Radnor, PA 19087
Branch Office (leased) Beaumont at Bryn Mawr (1) 1995
through April 16, 1998 Retirement Community
Bryn Mawr, PA 19010
Branch Office (leased) One Tower Bridge (6) 1995
through July 31, 1998 100 Front Street
West Conshohocken, PA 19428
Office Space (leased) Two Tower Bridge (7) 1996
through January 15, 1999 One Fayette Street
Conshohocken, PA 19428
30
<PAGE>
The Corporation:
- ----------------
Date Acquired
Other Facilities Address or Opened
- ---------------- ------- ----------------
Walk-in Lobby, Drive-up 813 Bryn Mawr Avenue (4) 1988
Windows, Meeting Room Bryn Mawr, PA 19010
(owned)
Office Building (owned) 10 Bryn Mawr Avenue (5) 1988
Bryn Mawr, PA 19010
Tax Counsellors of Bryn Mawr, Inc.:
- -------------------------------------
Office Space (leased) 90 Cricket Avenue (8) 1995
month-to-month basis Ardmore, PA 19010
(1) This branch office has been established primarily to meet the needs
of the residents of the Life Care Community in which it is located.
(2) This temporary agency remote facility consists of two automatic
teller machines primarily for the use of staff and students.
(3) This limited service branch is on the lobby level of a building located
in a five building office complex and has been established primarily to
meet the needs of the occupants of this office building complex. The
lease was renegotiated in 1995 and the square footage was reduced to 551
square feet. The lease expires on December 18, 1998.
(4) This property is contiguous to the Bank's main office, originally housed
a gas station, which was demolished. This property houses a walk-in
lobby, expanded drive-up facility and a new meeting room, put in service
in August, 1990.
(5) This property became the new location of the Bank's Trust Division, in
mid-December, 1989. The Corporation leased the property to the prior
owners on a month-to-month basis through June, 1989.
(6) This limited service branch is on the lobby level of an office building
and has been established to primarily meet the needs of the occupants of
the office building. There is an automatic teller machine located within
the facility. The lease is for 380 square feet and expires on August 1,
1998.
(7) This lease is for 1,250 square feet of office space to house the
Investment Management and Trust Division's Investment Counsellors of Bryn
Mawr ("ICBM"). ICBM was established in January 1996 to provide investment
advisory services to both existing and new clients of the Investment
Management and Trust Division. The lease expires on January 15, 1999.
(8) This lease is for 350 square feet of office space to house TCBM's staff.
The lease is on a month-to-month basis.
31
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
--------------------------
Neither the Corporation nor any of its subsidiaries is a party to, nor is
any of their property the subject of, any material legal pro ceedings other than
ordinary routine litigation incident to their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders which is required to be disclosed
pursuant to the instructions contained in the form for this report.
32
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
The information required by this Item 5 is incorporated by reference to the
information appearing under the caption "Price Range of Shares" on page 32 of
the Financial Section of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
The information required by this Item 6 is incorporated by reference to the
information appearing under the caption "Selected Financial Data" on page 1 of
the Financial Section of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The information required by this Item 7 is incorporated by reference to the
information appearing under the caption "Management's Discussion and Analysis of
Financial Condition and Result of Operations" on pages 2 to 16 of the Financial
Section of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1997.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The financial statements and the auditor's report thereon and supplementary
data required by this Item 8 are incorporated by reference on pages 17 to 31 of
the Financial Section of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997.
34
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
There were no matters which are required to be disclosed in this Item 9
pursuant to the instructions contained in the form for this report.
35
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The information with respect to Directors of the Corporation is incorporated
by reference on pages 6 through 9 of the definitive proxy statement of the
Corporation filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
Executive Officers of the Corporation. Below is certain information with
-------------------------------------
respect to the executive officers of the Corporation and Bank as of March 2,
1998:
AGE AS OF OFFICE WITH THE
NAME MARCH 2, 1998 CORPORATION AND/OR BANK
---- ------------- -----------------------
Robert L. Stevens 60 Chairman, President and
Chief Executive Officer
Director of Corporation
and Bank
Samuel C. Wasson, Jr. 59 Secretary and Director of
Corporation and Bank and
Vice Chairman of Bank
Joseph W. Rebl 53 Treasurer of Corporation
and Senior Vice
President- Finance and
Treasurer of Bank
Robert J. Ricciardi 49 Vice President of the
Corporation and Executive
Vice President and Chief
Credit Policy Officer
Paul M. Kistler, Jr. 61 Senior Vice President of
Bank- Banking Operations,
Human Resources,
Facilities and
Information Systems
Thomas M. Petro 39 Senior Vice President of
Bank- Community Banking
36
<PAGE>
AGE AS OF OFFICE WITH THE
NAME MARCH 2, 1998 CORPORATION AND/OR BANK
---- ------------- -----------------------
Peter H. Havens 43 Executive Vice President
of Bank- Investment
Management and Trust and
Director of Bank and
Corporation
Leo M. Stenson 47 Senior Vice President and
Auditor of Bank
Joseph G. Keefer 39 Senior Vice President
and Chief Lending Officer
Mr. Stevens was employed by the Bank in 1960 and elected an Assistant Treasurer
in 1962. He was elected an Executive Vice President with responsibility for
lending functions in 1968. He was elected a director in 1974 and was elected
President and Chief Executive Officer of the Bank, effective January 1, 1980.
Upon the formation of the Corporation in 1986, he was appointed the President
and Chief Executive Officer and a director. In December, 1995, Mr. Stevens was
appointed Chairman, President and Chief Executive Officer of the Bank and
Corporation.
Mr. Wasson was employed by the Bank in 1966. Later that year he was
elected an Assistant Treasurer. He was elected a Vice President in 1969 and in
1980 was elected Treasurer of the Bank. In 1981, Mr. Wasson was elected a
Senior Vice President and elected a director of the Bank and upon the formation
of the Corporation in 1986, he was elected a Vice President and director of the
Corporation. In January, 1992, he was elected Secretary of the Corporation and
Bank and relinquished the title of Vice President of the Corporation. In
November, 1993, he was elected Executive Vice President of the Bank. In
November 1997, he was elected Vice Chairman and assumed responsibility for the
day-to-day operation of the Bank.
37
<PAGE>
Mr. Ricciardi was employed by the Bank in 1971 and elected an Assistant
Treasurer in 1973. Mr. Ricciardi was elected an Assistant Vice President of the
Bank in 1976 and a Vice President in 1981. In 1989, Mr. Ricciardi was elected
Senior Vice President of Real Estate Lending. In November, 1993, he was elected
Executive Vice President and assumed responsibility for the Bank's Community
Banking Division. In November, 1997, Mr. Ricciardi was named the Bank's Chief
Credit Policy Officer and relinquished responsibility for the Community Banking
Division to Thomas M. Petro.
Mr. Rebl was employed by the Bank and elected its Comptroller in 1981. He
was elected Vice President and Comptroller in 1983 and Senior Vice President in
1987. Upon the formation of the Corporation in 1986, Mr. Rebl was elected
Treasurer of the Corporation. In 1992, Mr. Rebl was designated the Bank's
Senior Vice President - Finance. In 1994, Mr. Rebl was designated Treasurer of
the Bank.
Mr. Kistler was retained by the Bank as a human resources consultant in
November 1992 and was appointed Senior Vice President of Human Resources,
Facilities in January 1993, in April 1993 assumed responsibility for the Bank's
marketing function and in August, 1996, Mr. Kistler assumed responsibility for
the information systems and banking operations and turned over responsibility
for the Bank's marketing function to Mr. Petro. From 1976 to 1992, Mr. Kistler
was employed by Philadelphia National Bank (now merged into CoreStates Bank,
N.A.) in various capacities including Senior Vice President- Human Resource
Manager, Secretary of the Board of Directors, CoreStates Financial Corporation
as Manager and CoreSearch as a consultant.
Mr. Petro was appointed a Vice President of the Bank in January 1992 and
Senior Vice President- Information Management in November, 1993. In August,
1996, Mr. Petro assumed responsibility for the Bank's marketing function and
turned over responsibility for the Bank's banking operations and information
systems to Mr. Kistler. In November, 1997, he assumed responsibility for the
38
<PAGE>
Bank's Community Banking Division from Mr. Ricciardi. Mr. Petro was the
President of PRC from its formation in June 1990 until it ceased operations in
December, 1992. Formerly, since August 1986, Mr. Petro was Assistant Vice
President and Manager - Banking Group of Management Science Associates, Inc.
From November 1981 to August 1986, Mr. Petro was Product Manager for Mellon
Bank's DataCenter.
Mr. Havens was employed by the Bank on May 1, 1995 as the Executive Vice
President in charge of the Investment Management and Trust Division of the Bank.
Prior to joining the Bank, Mr. Havens was manager of Kewanee Enterprises, a
private investment company since April of 1982. Mr. Havens has been a director
of the Bank and the Corporation since 1986.
Mr. Stenson was employed by the Bank as Auditor in 1982, was elected Vice
President and Auditor in 1987 and was formerly an Assistant Vice President of
Western Savings Bank. In December, 1996, Mr. Stenson was elected Senior Vice
President and Auditor.
Mr. Keefer was employed by the Bank as Vice President in March, 1991. He
was promoted to Senior Vice President - Commercial Lending in July, 1994 and was
made the Bank's Chief Lending Officer in December 1997. Prior to his employment
by the Bank, Mr. Keefer was employed by First Pennsylvania Bank, NA from June,
1980 until March, 1991, when he was a Vice President in the commercial lending
division.
None of the above executive officers has any family relationship with any
other executive officer or with any director of the Corporation or Bank.
39
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The information required by this Item 11 is incorporated by reference on
pages 8 through 18 of the definitive proxy statement of the Corporation, filed
with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
--------------------------------------------------
OWNERS AND MANAGEMENT
---------------------
The information required by this Item 12 is incorporated by reference on
page 2, and pages 6 through 8 of the Corporation's definitive proxy statement,
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
There were no relationships or transactions required to be disclosed in
this Item 13 pursuant to the instructions contained in the form for this report,
as discussed on page 16 of the Corporation's definitive proxy statement, filed
with the Securities and Exchange Commission pursuant to Regulation 14A.
40
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
-------------------------------------------------
AND REPORTS ON FORM 8-K
-----------------------
(a) The following exhibits are filed as a part of this report.
EXHIBIT TABLE
-------------
3 - Articles of Incorporation and By-Laws
-----------------------------------------
(A) Articles of Incorporation, effective August 8, 1986, are incorpo rated
by reference to Form S-4 of the Registrant, No. 33-9001.
(B) By-Laws of the Registrant, as amended July 20, 1990, is incorporated
by reference to the Corporation's 10-K, filed with the Securities and
Exchange Commission on March 26, 1991.
4 - Instruments defining the rights of security holders
-------------------------------------------------------
Articles of Incorporation and By-Laws: See Item 3(A) & (B) above.
10 - Material Contracts
-----------------------
(A) Agreement dated December 31, 1990, between The Bryn Mawr Trust Company
and Mellon Bank, N.A. is incorporated by reference to the
Corporation's 10-K, filed with the Securities and Exchange Commission
on March 26, 1991.
(B) Mortgage dated December 16, 1988 between Fidelity Mutual Life
Insurance Company and Bryn Mawr Bank Corporation is incorporated by
reference to the Corporation's 10-K, filed with the Securities and
Exchange Commission on March 28, 1990.
(C) Mortgage dated May 18, 1988 between John A. Sparta and Helen M. Sparta
of the one part and Bryn Mawr Bank Corporation of the other part, is
incorporated by reference to the Corporation's 10-K, filed with the
Securities and Exchange Commissions on March 28, 1990.
(D) Agreement dated December 20, 1990 between Bryn Mawr Bank Corporation
and Profit Research Consulting, Inc., is incorporated
41
<PAGE>
by reference to the Corporation's 10-K, filed with the Securities and
Exchange Commissions on March 28, 1990.
(E) Letter of Understanding dated December 20, 1990, between Bryn Mawr
Bank Corporation and Profit Research Group, Inc., is incorporated by
reference to the Corporation's 10-K, filed with the Securities and
Exchange Commissions on March 28, 1990.
(F) License Agreement dated December 20, 1990, between Profit Research
Consulting, Inc. and Profit Research Group, Inc., is incorporated by
reference to the Corporation's 10-K, filed with the Securities and
Exchange Commissions on March 28, 1990.
(G) The Bryn Mawr Bank Corporation Amended and Restated 1986 Stock Option
and Stock Appreciation Plan, is hereby incorporated by reference to
the Corporation's Proxy Statement dated March 14, 1994 and filed with
the Commission as Appendix A to the Proxy Statement on March 15, 1994.
(H) License Agreement dated December 30, 1994, between Bryn Mawr Bank
Corporation and FIserv Cir, Inc. is incorporated by reference to the
Corporation's 10-K, filed with the Securities and Exchange Commission
on March 31, 1995.
(I) The Bryn Mawr Bank Corporation Non-Employee Directors Stock Option
Plan, is hereby incorporated by reference to the Corporation's Proxy
Statement dated March 10, 1995 and filed with the Commission as
Appendix A to the Proxy Statement on March 10, 1995.
(J) The Bryn Mawr Bank Corporation 1998 Stock Option Plan, is hereby
incorporated by reference to the Corporation's Proxy Statement dated
March 2, 1998 and filed with the Commission as Exhibit A to the Proxy
Statement.
(K) Agreement dated May 2, 1997, between The Bryn Mawr Trust Company and
Marshall and Ilsley Corporation, to provide data processing services
to the Bank's Investment Management and Trust Division is incorporated
by reference into this filing of the Corporation's Form 10-K.
42
<PAGE>
13. - Annual Report to Security Holders
---------------------------------
The Registrant's 1997 Annual Report to Shareholders is attached herewith
as Exhibit 13. Such Annual Report, except for the portions thereof that
are expressly incorporated by reference herein, is only furnished for the
information of the Securities and Exchange Commission and is not deemed to
be filed as a part of this Form 10-K.
22 - Subsidiaries of the Registrant
- ------------------------------------
Name State of Incorporation
---- ----------------------
The Bryn Mawr Trust Company Pennsylvania
Bryn Mawr Financial Services, Inc. Pennsylvania
Tax Counsellors of Bryn Mawr, Inc. Pennsylvania
23 - Consent of Experts
------------------
Consent of Independent Accountants filed herewith as Exhibit 23.
99 - Portions of the Proxy Statement
-------------------------------
Excerpts from the Registrant's Proxy Statement for its 1998 Annual
Meeting to be held on April 21, 1998 are filed herewith as Exhibit 99.
(b) On November 12, 1997, the Corporation filed a Form 8-K with the Securities
and Exchange Commission indicating that, on October 27, 1997, the Bank sold
its interest in a commercial property for a pre-tax gain of $255,000 or
twelve cents a share.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
-----------------------------------------------------
The report of Independent Certified Public Accountants as pertaining to the
Consolidated Financial Statements of Bryn Mawr Bank Corporation and related
notes is incorporated by reference to page 31 of the Financial Section of
the Corporation's 1997 Annual Report to Shareholders.
Consolidated Financial Statements and related notes are incorporated by
reference to the Financial Section of the Corporation's 1997 Annual Report
to Shareholders, and may be found on the pages of said Report as indicated
in the parenthesis:
Balance Sheets, December 31, 1997 and 1996 (page 17)
Statements of Income for the years ended December 31, 1997, 1996 and
1995 (page 18)
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 (page 20)
Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995 (page 19)
Notes to Financial Statements (pages 21 to 30)
Supplementary Data:
Quarterly Results of Operations are incorporated by reference to the in
formation under the caption "Selected quarterly financial data (unaudited)"
in Note 14 on page 29 of the Financial Section of the Corporation's Annual
Report to Shareholders for the fiscal years ended December 31, 1997 and
1996.
Financial Statement Schedules are omitted because of the absence of the
conditions under which they are required or because the information called
for is included in the Consolidated Financial Statements or notes thereto.
Exhibits:
For information regarding exhibits, including those incorporated by reference,
see pages 41 through 44 of this report.
44
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Corporation and
in the capacities and on the date indicated.
NAME TITLE DATE
---- ----- ----
/s/ Robert L. Stevens
- ----------------------- Chairman, President and March 19, 1998
Robert L. Stevens Chief Executive
Officer (Principal Executive
Officer) and Director
/s/ Joseph W. Rebl
- ----------------------- Treasurer (Principal March 19, 1998
Joseph W. Rebl Financial and Principal
Accounting Officer)
/s/ Darrell J. Bell
- ----------------------- Director March 19, 1998
Darrell J. Bell
/s/ Richard B. Cuff
- ----------------------- Director March 19, 1998
Richard B. Cuff
- ----------------------- Director March __, 1998
Warren W. Deakins
/s/ William Harral III
- ----------------------- Director March 20, 1998
William Harral III
/s/ Wendell F. Holland
- ----------------------- Director March 19, 1998
Wendell F. Holland
/s/ Peter H. Havens
- ----------------------- Director March 19, 1998
Peter H. Havens
/s/ Sherman R. Reed III
- ----------------------- Director March 20, 1998
Sherman R. Reed, 3rd
45
<PAGE>
NAME TITLE DATE
---- ----- ----
- ------------------------ Director March __, 1998
Phyllis M. Shea
/s/ B. Loyall Taylor, Jr.
- ------------------------- Director March 20, 1998
B. Loyall Taylor, Jr.
/s/ Samuel C. Wasson, Jr.
- ------------------------- Director March 19, 1998
Samuel C. Wasson, Jr.
/s/ Thomas A. Williams
- ------------------------- Director March 19, 1998
Thomas A. Williams
46
<PAGE>
Commission File No. 0-15261
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
- --------------------------------------------------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
B R Y N M A W R B A N K C O R P O R A T I O N
E X H I B I T S
47
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EXHIBIT 10 (K)
48
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
DATA PROCESSING SERVICES AGREEMENT
THIS DATA PROCESSING SERVICES AGREEMENT is made as of this 2nd day of May
1997, ("the Agreement") by and between M&I Data Services, a division of the
Marshall & Ilsley Corporation, a Wisconsin corporation ("M&I") and The Bryn Mawr
Trust Company, a Pennsylvania corporation, together with its subsidiaries and
affiliates (collectively referred to as the "Customer").
RECITALS
WHEREAS, M&I provides trust data processing services to customers located
across the country; and
WHEREAS, M&I desires to provide trust data processing services to Customer,
and Customer desires to have M&I provide it with such services.
NOW, THEREFORE, in consideration of the recitals and for the good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Services.
--------
a. Trust Data Processing. M&I shall provide Customer with the trust
---------------------
data processing services requested by Customer utilizing the version of the
Trust System software made available from time to time by M&I through the M&I
Service Bureau (the "Services"). The functionality of the software and a further
description of the Services is set forth in Exhibit A and in the User Manuals,
copies of which will be provided, or made available to Customer. Customer shall
cause all future subsidiaries and affiliates, if and when any such future
subsidiary or affiliate terminates its agreement with the data processing vendor
providing services prior to the acquisition or affiliation, to purchase all of
their required trust data processing services from M&I, where M&I offers like or
similar trust data processing services to those required by the Customer, its
affiliates and subsidiaries and M&I consents to providing those services. Unless
otherwise agreed in writing between M&I and Customer, and subject to the other
provisions of the Agreement, M&I shall make the On-line Services available to
Customer, subject to normal downtime and maintenance, at times indicated on the
M&I On-line Availability Schedule in Exhibit A, as modified from time to time.
b. TrustDesk(TM) Software. For purposes of this Agreement, the term
----------------------
TrustDesk(TM) software shall mean desktop personal computer software developed
by M&I, delivered to the Customer in machine-readable code (object code) only,
together with related installation guide provided by M&I and identified in
Exhibit A.
M&I hereby grants to Customer a nonexclusive, nontransferrable, and
revocable license to use the TrustDesk(TM) software for its own internal
business
1
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
purposes and solely accessible by the number of personal computers authorized on
Exhibit A. Customer acknowledges and agrees that TrustDesk(TM) software is
licensed to Customer on the condition that Customer currently, and continues to
have throughout the time period of this License, all of its data processed by
the M&I Trust System. Customer understands that this License does not include
the operating system which may be necessary to utilize the TrustDesk(TM)
software.
2. Fees and Taxes. Customer agrees to pay for the Services received in
--------------
accordance with the provision of Exhibit B.
a. Additional Charges. Customer agrees to pay all communication
------------------
costs, telecommunication charges, printline charges and other output costs,
start-up fees, pass-through charges, out-of-pocket expenses, conversion expenses
and fees, workshop fees, training fees, and late fees or charges billed as
miscellaneous on Customer's invoice (the "Miscellaneous Fees"). In addition to
the charges described above or set forth in Exhibit B, Customer agrees to pay
for any manufacturers, sales, use, excise, personal property, or any other tax
or charge, or duty or assessment levied or assessed by any governmental
authority upon or as a result of the execution or performance of any service
pursuant to this Agreement or materials furnished with respect to the Agreement,
except those taxes based on M&I's net income. the Customer shall also pay any
collection fees and reasonable attorney's fees incurred by M&I in collecting
payment of the charges and other amounts for which Customer is liable under the
terms and conditions of this Agreement.
b. Terms of Payment. Customer shall pay amounts due hereunder
----------------
within thirty (30) days of the date such amounts are invoiced to Customer.
c. Modification of Terms and Pricing. If Customer is in default and
---------------------------------
M&I elects to continue to provide the Services, Customer agrees to pay M&I all
unamortized conversion expenses in advance of M&I performing any additional
Services. In addition, Customer agrees that all charges for Services shall be
computed using one hundred ten percent (110%) of the prices established in
Exhibit B, paid in advance as determined by M&L. Upon Customer's cure of the
default, charges for Services shall revert to those prescribed in Section 2(a),
above. At M&I's option, such Services shall be provided on a month-to-month
basis.
3. Term.
----
a. Initial Term. This Agreement shall be effective upon execution
------------
by both parties, and both parties will promptly undertake the activities
necessary to convert Customer's data. M&I currently anticipates, subject to
Customer's timely and satisfactory completion of its responsibilities described
in the M&I Conversion Manual and in the Conversion Schedule to be established
by M&I, and agreed to by Customer, that all conversion activities will be
completed on November 28, 1997 (the "Conversion Date"). The TrustDesk(TM)
Software shall be deemed to have been accepted as of the Conversion Date. The
term of this Agreement shall continue for a period of seventy-two (72) months
from the Conversion Date.
b. Renewal Obligations. During any renewal term, or for any
-------------------
Services provided after the end of the initial term, whether or not the
Agreement is renewed, Customer agrees that the terms of this Agreement shall
continue to apply,
2
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
except that all charges for Services shall be computed using one hundred eight
percent (108%) of the prices established on Exhibit B. At M&I's option, such
Services shall be provided by M&I on a month-to-month basis.
4. Affiliates. All processing for Customer and Customer's subsidiaries
----------
and affiliates which M&I does shall be included as part of the Services
provided under this Agreement and shall be done in accordance with the terms and
conditions of this Agreement. Customer agrees that it is responsible for
assuring compliance with the Agreement by its affiliates and subsidiaries.
Customer agrees to be responsible for the submission of its affiliates' data to
M&I for processing and for the transmission to Customer's affiliates of such
data processed by and received from M&I. Customer agrees to pay any and all
fees owed under this Agreement for Services hereunder.
5. Confidentiality. Both parties will, to the extent and in accordance
---------------
with their policies used to protect their own information of similar importance,
use their best efforts to refrain from and prevent the use of or disclosure of
any confidential information of the other party, disclosed or obtained by such
party while performing its obligations under this Agreement, except when such
use or disclosure is for the purpose of providing the Services. Neither party
will have an obligation of confidentiality with regard to any information
insofar as the same: (1) was known to such party prior to disclosure; (2) is or
becomes publicly available other than as a result of a breach of this Agreement;
or (3) is disclosed to such party by a third party not subject to an obligation
of confidentiality. Nor shall the obligation of confidentiality occur where
disclosure is made pursuant to: (1) any law of the United States or any state
thereof; (2) the order of any court or governmental agency; or (3) the rules and
regulations of any governmental agency.
Customer agrees to notify M&I promptly of the circumstances
surrounding any unauthorized possession, use, or knowledge of any part of the
TrustDesk(TM) software, or any other information or documentation made available
pursuant to this Agreement to anyone other than persons properly authorized by
Customer to have such possession, use, or knowledge.
Customer acknowledges and agrees that the TrustDesk(TM) software,
including all authorized and unauthorized copies, are proprietary to and
valuable trade secrets of M&I, as the case may be, and Customer shall maintain
their confidential nature. Customer agrees that the TrustDesk(TM) software shall
be used only in accordance with this Agreement, and Customer shall not assign,
sell, lease, market, transfer, reproduce, or disclose the TrustDesk(TM) software
or any modification thereto to others. Customer shall limit access to the
TrustDesk(TM) software to Customer's employees or third parties, when such
persons (1) are performing services for the Customer, related to the Customer's
authorized use of the TrustDesk(TM) software; and (2) have a valid need to know
and have established a legal obligation with the Customer to protect the
TrustDesk(TM) software from unauthorized copying or use. Customer shall exercise
all reasonable precautions to prevent access to the TrustDesk(TM) software by
persons not authorized by terms of this Agreement. Customer shall store the
TrustDesk(TM) software in a secure place at all times it is not being used. In
addition, Customer shall take appropriate measures to prevent copying,
distribution, reverse engineering, and reverse compiling of the
3
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
TrustDesk(TM) software. Customer recognizes that the TrustDesk(TM) software may
be patented, copyrighted, trademarked, or otherwise protected by M&I, as the
case may be, and Customer will not undertake to patent, copyright, trademark, or
otherwise apply for a proprietary grant or right with respect to the
TrustDesk(TM) software.
6. Programming. M&I reserves the right to determine the programming
-----------
(whether hardware or software) utilized with the equipment used in fulfilling
its duties under this Agreement. All programs (including ideas and know-how and
concepts) developed by M&I are and remain its sole property.
7. Equipment. Customer shall obtain and maintain at its own expense such
---------
data processing and communications equipment as may be necessary or appropriate
to facilitate the proper use and receipt of the Services. Customer shall pay all
installation, monthly, and other charges relating to the installation and use of
communications lines in connection with the Services. M&I maintains and will
continue to maintain a network control center with diagnostic capability to
monitor communication line reliability and availability. M&I shall not be
responsible for the reliability monitoring or continued availability of the
communications lines used by Customer in accessing the Services. M&I agrees to
reasonably perform diagnostic services and communicate to vendors any
deficiencies of which M&I is or becomes aware.
8. Supplies. Customer shall pay for all supplies used in connection with
--------
the Services. All forms, supplies, or materials used in processing Customer's
items and input data shall meet M&I's specifications.
9. Systems Modification; Amendment of Services. M&I may modify, amend,
-------------------------------------------
enhance, update, withdraw, or provide the appropriate replacement for any of the
Services, the software used to provide the Services, or any element of its
systems at any time to: (1) improve the Services, or (2) facilitate the
continued economic provisions of the Services, provided that with respect to any
such modification, amendment, or replacement there is no material reduction in
the functionality provided to Customer by the core elements of the software (M&I
Trust System) upon providing one hundred twenty (120) days' prior written notice
to Customer. Either party may also terminate any of the Services immediately
upon any regulatory, legislative, or judicial determination that providing such
Services is inconsistent with applicable law or regulation or upon imposition by
any such authority of restrictions or conditions which would detract from the
economic or other benefits to M&I or Customer to any element of the Services.
M&I shall use its best efforts in developing future releases and
upgrades of the TrustDesk(TM) software and accompanying documentation. If M&I
does develop future releases and upgrades which replace or supersede any other
version of the TrustDesk(TM) software then in use by the Customer, the Customer
agrees to install the new release as of the effective date stated on the
release. Any earlier version of the TrustDesk(TM) software will not be supported
by M&I after the effective date of the new release, if any.
10. Disaster Recovery. M&I maintains, and shall continue to maintain
-----------------
throughout the term of this Agreement, off-site disaster recovery capabilities
which permit M&I to recover from a disaster and continue providing Services to
4
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
Customers within a commercially reasonable period. An executive summary of the
current disaster recovery plan, which may change from time to time, is available
upon request from M&I at no charge. M&I shall test the operation and
effectiveness of its disaster recovery plan at least annually. M&I maintains,
and shall continue to maintain throughout the term of this Agreement, a backup
power supply system to guard against electrical outages.
11. Events of Default. It shall be an Event of Default on the part of
-----------------
the Customer if: (1) Customer is insolvent, or a receiver or conservator shall
be appointed with respect to the Customer; or (2) Customer shall fail to pay any
sum due M&I within the prescribed time; or (3) if Customer shall fail to perform
any of its other covenants or obligations under this Agreement where the failure
of Customer to perform has a material adverse impact on M&I and is material to
Customer's obligations hereunder; or (4) if Customer shall breach its
confidentiality obligations under Section 5 of this Agreement. It shall be an
Event of Default on the part of M&I if M&I shall fail to perform any of its
obligations under this Agreement where the failure of M&I to perform has a
material adverse impact on Customer and is material to the provision of the
Services, except for those obligations under Section 20 as to which the
Agreement provides remedies for M&I failure to perform. The defaulting party
shall have ten (10) days from the date of receipt of notice from the
nondefaulting party or nonpayment or nonperformance to cure such an Event of
Default, before the nondefaulting party may exercise any remedies it may have as
a result of the Event of Default.
12. Remedies Upon Default; Limitation of Liabilities. If an Event of
------------------------------------------------
Default occurs on the part of the Customer, and is not cured within the ten (10)
day period prescribed in Section 11, M&I may (a) terminate this Agreement; (b)
terminate access to its central processing unit by the Customer; and (c) declare
all amounts payable under this Agreement to be immediately due payable and file
suit for or otherwise obtain payment from the Customer of any fees or other sums
due it pursuant to this Agreement, plus any actual damages to its equipment or
systems caused by the Customer's actions, failures to act, equipment, systems,
or communication facilities, plus any profits lost because of the Customer's
default. If an Event of Default occurs on the part of M&I, and is not cured
within the ten (10) day period prescribed in Section 11, the Customer may only:
(a) terminate this Agreement and (b) file suit or otherwise obtain payment of an
aggregate amount of fees paid by the Customer to M&I hereunder during the three
(3) months immediately preceding the Event of Default. Either party may also
seek specific performance, including injunctive relief, for a breach of Section
5 of this Agreement. M&I and the Customer agree that these damage provisions are
reasonable in light of all present predictable circumstances (including
expectable actual damages in the fees to be charged by M&I hereunder do not
include amounts sufficient to insure against greater claims). M&I and Customer
expressly waive all claims for additional, incidental, consequential,
compensatory or punitive damages and agree that the remedies set forth in this
Agreement shall be the sole and exclusive remedies of the parties. No lawsuit or
other action may be brought by either party hereto or on any claim or
controversy based upon or arising in any way out of this Agreement after one (1)
year from the date of the occurrence allegedly giving rise to the action, except
for nonpayment of sums due to M&I by Customer. M&I agrees that except in the
case of an Event of Default relating to a breach by the
5
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
Customer of its confidentiality obligations under Section 5 of this Agreement,
M&I will not exercise its remedy to terminate Customer's access to the M&I
central processing unit so long as: (a) Customer is current in the payment of
all amounts due M&I as reflected on M&I's last invoice to Customer; and (b) only
exercise such remedy after providing Customer with sixty (60) days' prior
written notice.
13. Termination.
-----------
a. End of Initial Term. This Agreement shall automatically be
-------------------
extended at the end of the initial seventy-two (72) month term for an additional
twelve (12) month renewal term, unless the Customer gives M&I at least one
hundred eighty (180) days' prior written notice of its intent to terminate,
which notice may be given during the initial term of the Agreement.
b. Renewal Term. During the renewal term, this Agreement shall be
------------
automatically extended for an additional one (1) month period on each monthly
anniversary date so that the term shall always be not less than twelve (12)
months, unless either party gives written notice to the other party of notice to
terminate, in which event the automatic renewals will end and the Agreement will
terminate at the end of the unexpired portion of the term in existence on the
date notice to terminate is given.
c. Termination Upon Default. This Agreement may also terminate
------------------------
upon an Event of Default and failure to cure beyond applicable cure periods at
the option of the nondefaulting party as set forth in Section 11 hereof.
d. Termination by Customer. Customer may terminate this Agreement
-----------------------
at any time, and without cause, by giving M&I at lease one hundred eighty (180)
days' prior written notice and paying M&I the then-applicable buyout amount set
forth in Section 21.
14. Regulatory Assurances. M&I and Customer acknowledge and agree that
---------------------
the performance of these Services will be subject to regulation and examination
by Customer's regulatory agencies to the same extent as if such Services were
being performed by Customer. Upon request, M&I agrees to provide any appropriate
assurances to such agency and agrees to subject itself to any required
examination or regulation. Customer agrees to reimburse M&I for reasonable costs
actually incurred due to any such examination or regulation that is performed
solely for the purpose of examining data processing services used by the
Customer.
a. Notice Requirements. The Customer shall be responsible for
-------------------
complying with all regulatory notice provisions to any applicable governmental
agency, which shall include providing timely and adequate notice as of the
effective date of Services under this Agreement, identifying those records to
which this Agreement shall apply and the location at which such Services are to
be performed.
b. Examination of Records. The parties agree that the records
----------------------
maintained and produced under this Agreement shall, at all times, be available
for examination and audit by governmental agencies having jurisdiction over the
Customer's business. The Director of Examinations of the Federal Agency or his
designated representative shall have the right to ask for and to receive
directly from
6
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
M&I any reports, summaries, or information contained in or derived from data in
the possession of M&I related to the Customer. M&I shall notify Customer as soon
as possible of any formal request by an authorized governmental agency to
examine Customer's records maintained by M&I, if M&I is permitted to make such a
disclosure to Customer under applicable law or regulations. Customer agrees that
M&I is authorized to provide all such described records when formally required
to do so by this authorized governmental agency.
c. Fidelity Bonds. M&I shall maintain fidelity bond coverage in
--------------
the amount of not less than $1,000,000 for M&I and its employees as such
coverage is required by any governmental or regulatory agency.
d. Insurance. Throughout the term of this Agreement, M&I shall
---------
maintain insurance coverage (or shall be self-insured) in amounts reasonable for
a provider of data processing services for losses from fire, disaster, and
other causes contributing to interruption of the Services. The proceeds of such
insurance shall be payable to M&I. Nothing in this Agreement shall be construed
as to permit Customer to receive any of such proceeds, or to be named as an
additional loss payee under any insurance policy.
15. Transportation and/or Transmission of Data. The responsibility and
------------------------------------------
expense for transportation and/or transmission of and risk of loss of data and
media to and from M&I's data centers shall be borne by Customer. M&I will notify
Customer of the time by which Customer's data and media must be delivered to M&I
for processing for M&I to provide Customer's processed data within the time
period indicated by M&I.
16. Responsibility.
--------------
a. General. M&I agrees to perform the Services in a commercially
-------
reasonably manner, which is similar to the services provided to other M&I
customers, and no other or higher degree of care. Except as otherwise described
herein, M&I assumes no other obligation as to performance or quality of the
Services provided, all other risks of error being expressly assumed by Customer.
M&I shall not be responsible for loss or damage due to delays in processing or
in the delivery of processed data as a result of any of the causes excused by
Section 19 hereof. M&I WILL IN NO EVENT BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
OR CONSEQUENTIAL DAMAGES INCURRED BY CUSTOMER INCLUDING, BUT NOT LIMITED TO,
LOST PROFITS OR BUSINESS OPERATION LOSS, REGARDLESS OF WHETHER M&I WAS ADVISED
OF THE POSSIBLE OCCURRENCE OF SUCH DAMAGES.
b. Reliance on Data Supplied. M&I will process items and data and
-------------------------
perform those Services described in this Agreement on the basis of information
furnished by Customer. M&I shall be entitled to rely upon any such data,
information, or instructions as provided by Customer. If any error results from
incorrect input supplied by Customer, Customer shall be responsible for
discovering and reporting such error and supplying the data necessary to correct
such error to M&I for processing at the earliest possible time. Customer will
indemnify and hold M&I harmless from any cost, claim, damage, or liability
(including attorneys' fees) whatsoever arising out of such data, information or
instructions, or any inaccuracy
7
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
or inadequacy therein. Customer assumes all risk of loss, delay, and
miscommunication in the transportation or transmission by electronic means of
data and information from any terminal or remote unit unless the same is caused
by or attributable to any act or omission on M&I's part, which act or omission
does not meet the standard of care in Section 16(a), or was caused by or
attributable to any gross negligence or willful failure on M&I's part to comply
with its obligations under this Agreement.
c. Data Backup. Customer shall maintain adequate records of items being
-----------
transmitted or transported to M&I from which reconstruction of lost or damaged
items or data can be made. Customer assumes all responsibility and liability for
any loss or damage resulting from failure to maintain such records.
d. Audit. M&I shall cause a third-party review of its data processing
-----
center and related internal controls to be conducted annually by its independent
auditors. M&I shall provide Customer, upon written request, one copy of the
report resulting from such review.
e. Regulatory Compliance. Customer is responsible for determining that
---------------------
the Services performed in its behalf, any forms which are used with its
customers, and all records it retains comply with all applicable laws. Should
Customer need information from the Services M&I provides in order to comply with
applicable federal or state laws and regulations, Customer's sole remedy, and
M&I's sole obligation shall be for M&I to provide the ability to process the
information requested from the Customer as promptly as is commercially
practicable.
f. Balancing and Controls. On a daily basis, Customer shall review all
----------------------
input and output, controls, reports, and documentation, to ensure the integrity
of data processed by M&I. In addition, Customer shall, on a daily basis, check
exception reports to verify that all file maintenance entries and nondollar
transactions were correctly entered. Customer is responsible for initiating
timely remedial action to correct any improperly processed data which these
reviews would disclose.
g. Service Deficiencies. If Customer is aware that a defect exists in a
--------------------
Service, Customer shall be responsible for making whatever appropriate
adjustments may thereafter be necessary until M&I corrects the defect and, if
requested by Customer, M&I will, at M&I's expense, assist Customer in making
such corrections through the most cost-effective means, whether manual, by
system reruns, or program modifications. M&I will, where reasonable, make every
effort to correct any known material defect as soon as commercially reasonable
at M&I's expense.
If, after investigation of the reported system error, it is
determined that the system error is beyond M&I's responsibility, including, but
not limited to, system errors resulting from modifications made by the Customer,
the Customer agrees to pay for M&I's efforts in investigating and/or resolving
the system error at M&I's then-current rates for such services, plus expenses
incurred by M&I.
17. Ownership of Data. Customer is the owner of all of its data supplied
-----------------
8
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
by Customer to M&I for processing hereunder. Customer acknowledges that it has
no rights in any of the software, systems documentation, guidelines, procedures,
and similar related materials or any modifications thereof except with respect
to M&I's use of the same during the term of this Agreement to process data. Upon
termination of this Agreement, M&I shall provide Customer with all copies of
Customer's data in a format that is being used by M&I at that time for
processing such data. Prior to the release of the Customer's data: (1) all
amounts owed under this Agreement by Customer to M&I shall be current and paid
in full, and (2) Customer shall pay M&I its "Estimated Deconversion Expenses" as
described below. Customer agrees to pay M&I for M&I's work in providing such
data at M&I's rates then in effect for computer and personnel time, supplies,
and other items as required, and Customer further agrees to pay M&I for any and
all charges associated with the deconversion of Customer's data based on M&I's
then-current charges for such Services. M&I shall make a good faith estimate of
all of such costs, expenses, and charges which shall be paid by Customer in
advance (the "Estimated Deconversion Expenses"). The difference, if any, between
the actual expenses and the prepaid Estimated Deconversion Expenses shall be
promptly paid after determination.
18. Warranties. M&I represents and warrants that:
----------
a. Capability of Computer Systems and Software. M&I's computer
-------------------------------------------
systems (hardware and software) are capable of performing the Services in
accordance with the provisions of this Agreement. The software used to provide
the Services will operate substantially in accordance with the specifications
and documentation for the software as modified from time to time to incorporate
enhancements or modifications of the software to provide the Services.
b. Quality of Service. The reports and Services made available to
------------------
Customer shall be in substantial conformity with the User Manuals, as amended
from time to time, copies of which have been, or will be, provided to Customer.
c. Property Rights. M&I has the right to provide the Services
---------------
hereunder, using all computer software required for that purpose.
d. Organization and Approvals. M&I is a validly organized
--------------------------
corporate entity with valid authority to enter into this Agreement. This
Agreement has been duly authorized by all necessary corporate action.
e. Disclaimer of Warranties. EXCEPT AS DESCRIBED IN THIS SECTION OF
------------------------
THIS AGREEMENT, M&I DISCLAIMS ALL OTHER WARRANTIES, WHETHER WRITTEN, ORAL,
EXPRESSED OR IMPLIED INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
19. Force Majeure. M&I shall not be liable to Customer if M&I's
-------------
fulfillment or performance of any terms or provisions of this Agreement is
delayed or prevented by revolution or other civil disorders; wars; acts of
enemies; strikes; electrical equipment or availability failure; labor disputes;
fires; floods; acts of God; federal, state, or municipal action; statute;
ordinance or regulation; or, without limiting the foregoing, any other causes
not within its reasonable control, and
9
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[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
which by the exercise of reasonable diligence it is unable to prevent, whether
of the class of causes hereinbefore enumerated or not.
20. Data Services Reliability and Responsiveness. Subject to the
-------------------------------------------
nonoccurrence of a force majeure and the performance of Customer's obligations
described in this Agreement, M&I agrees that the services will be provided in
accordance with the following standard. M&I will initiate batch processing and
have bank operations reports available for transmission to Customer or make the
processed item and reports within six (6) hours (fifteen (15) hours at year end)
after receiving all input data from Customer, and with such performance being
missed not more than two (2) processing days per calendar month. M&I will ensure
that its on-line computing facilities are available for the processing of
Customer's on-line transactions at a minimum of ninety-eight percent (98%) of
the time, as prescribed by Customer, measured over a calendar month at the point
of departure from M&I's communications controller. M&I will process CRT
synchronous transactions in an average of 2.5 seconds as measured over a
calendar month using IBM System Monitoring Facility (SMF) or similar product.
Should M&I not be able to achieve this objective, M&I may recommend network or
equipment upgrades over which Customer has control and Customer shall be
responsible for making such changes or accepting the response time that is
achieved. Customer will notify M&I in writing if these levels of performance are
not achieved, and M&I shall have ninety (90) days to meet these performance
standards. If after ninety (90) days the performance standard still has not been
met, the Customer's sole remedy shall be to either (i) terminate the agreement
without penalty upon giving M&I written notice within thirty (30) days after the
expiration of the ninety (90) day cure period, or (ii) accept such deficient
levels which M&I does achieve. M&I assumes no other liability, express or
implied, with respect to its obligations set forth in this paragraph.
21. Contract Buyout.
---------------
a. Customer may terminate this Agreement at any time by giving M&I
at least one hundred eighty (180) days' prior written notice of termination and
paying M&I eighty percent (80%) of the total estimated remaining unpaid monthly
processing fees. For the purpose of this computation, total estimated remaining
unpaid monthly processing fees shall be equal to the mean average of the total
monthly fees paid in the three (3) months preceding the termination notice,
multiplied by the number of months remaining in the Agreement.
b. The contract buyout amount set forth above shall be paid prior to
the deconversion of any affected accounts. The contract buyout amount shall be
paid by Customer regardless of the form by which the termination occurs,
including but not limited to, sale of assets or stock, assumption of
liabilities, merger, consolidation, absorption, liquidation, or termination as a
result of an Event of Default on the part of the Customer (as described in
Section 11 of this Agreement).
22. IRS Filing. Customer has complied with all laws, regulations,
----------
procedures, and requirements in attempting to secure correct tax identification
numbers (TINs) for Customer's payees and agrees to attest to this compliance by
an affidavit providing annually. Customer authorizes M&I to act as Customer's
agent and sign on Customer's behalf the Affidavit required by the Internal
Revenue
10
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
Service on Form 4804, or any successor form.
Customer acknowledges that M&I's execution of the Form 4804 Affidavit on
Customer's behalf does not relieve Customer of responsibility to provide
accurate TINs or liability for any penalties which may be assessed for failure
to comply with TIN requirements. Customer agrees to hold M&I harmless from any
liabilities, claims, expenses, penalties, or damages (including attorneys' fees)
which may be assessed or incurred as a result of the failure to comply with TIN
requirements.
23. Expense Reimbursements.
----------------------
a. Customer agrees to reimburse M&I for all out-of-pocket expenses
(travel, lodging, meals) reasonably incurred in connection with the initial
conversion (to include all applications listed in Exhibit A) of Customer's
accounts to the M&I system as incurred by M&I and invoiced to the Customer.
b. Customer agrees to reimburse M&I for all conversion charges
(out-of-pocket expenses and conversion programming, training, and support fees)
reasonably incurred in connection with the conversion of any accounts or
products which are not converted during the initial conversion as incurred by
M&I and invoiced to the Customer.
24. Conversion Obligations. Both parties agree to make a good faith
----------------------
effort to convert Customer's data in a timely fashion and to perform the
conversion in accordance with the responsibilities set forth in the M&I
Conversion Manual, the Conversion Schedule, and this Agreement. Customer further
agrees to provide such Services and perform such obligations as are contemplated
by the M&I Conversion Manual and the Conversion Schedule, and as necessary for
Customer to timely and adequately perform its obligations herein and therein.
Customer further agrees to cooperate fully with all reasonable requests of M&I
necessary to effect the conversion in a timely and efficient manner.
25. Use of the Services. (a) Customer assumes exclusive responsibility
-------------------
for the consequences of any instruction Customer may give M&I, for Customer's
failure to properly access the Services in the manner prescribed by M&I, and for
Customer's failure to supply accurate input information; (b) Customer agrees
that it will use the Services in accordance with such reasonable policies as may
be established by M&I from time to time as set forth in any materials furnished
by M&I to Customer; (c) Customer agrees that, except as otherwise permitted by
M&I, Customer will use the Services only for its own internal business purposes
and will not sell, provide access to, or otherwise provide, directly or
indirectly, any of the Services, or any of the Software (including any software
modified by the Customer) or any portion thereof to any third party; and (d)
Customer agrees and represents that (i) this Agreement has been approved by its
board of directors, or that the officer executing this Agreement has been
specifically authorized by Customer's board of directors to execute this
Agreement, (ii) the performance of this Agreement by the Customer will not
affect the safety or soundness of the Customer or any of its affiliates, and
(iii) this Agreement, and the obligations evidenced hereby, will be properly
reflected on the books and records of the Customer, and the Customer will
provide evidence of the same to M&I upon request.
11
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
26. Defense of Suit. M&I will defend Customer against any and all claims
---------------
that software furnished to Customer by M&I hereunder infringes a U.S. patent or
copyright and M&I will pay resulting costs, damages, and attorneys' fees
awarded, provided that:
a. Customer promptly notifies M&I in writing of the claim; and
b. M&I has sole control of the defense and all related settlement
negotiations.
If such claim has occurred or in M&I's opinion is likely to occur, Customer
agrees to permit M&I at M&I's option and expense, either to procure for
Customer the right to continue using the software or replace or modify the same
so that they become noninfringing. If neither of the foregoing alternatives is
reasonably available, Customer agrees on one (1) month's written notice from M&I
to return or destroy the original of the TrustDesk(TM) software received from
M&I and all copies thereof.
M&I shall have no obligation to defend Customer or to pay costs, damages, or
attorneys' fees for any claim based upon (i) user of other than a current
unaltered release of the software provided by M&I, utilized by Customer on
Customer's personal computers if such infringement would have been avoided by
the use of a current unaltered release of such software, or (ii) the
combination, operation, or use of any such software furnished hereunder with
non-M&I programs or data, or (iii) use of such software in other than the
environment described in this Agreement if such infringement would have been
avoided by use in such an environment.
The foregoing states the entire obligation of M&I with respect to
infringement of patents or copyrights.
27. Software Modified by Customer. M&I shall not be liable to Customer
-----------------------------
or others for software furnished to Customer which is modified by parties other
than M&I. Customer will own all rights to any modifications it makes to such
software, but Customer hereby agrees to notify M&I of any modifications. Under
no circumstances will Customer sell, distribute, or license such modifications.
Nothing herein will prevent M&I from developing and distributing its own
modifications to such software based on Customer's disclosure to M&I of its
modifications or upon similar ideas or concepts developed by M&I.
28. Miscellaneous.
-------------
a. Governing Law. This Agreement shall be construed and governed
-------------
by the laws of the state of Wisconsin.
b. Amendment. This Agreement, including the Schedule hereto, may
---------
be amended only by an instrument in writing executed by the parties or their
permitted assignees.
c. Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party, which such consent shall
not be unreasonably withheld, provided that M&I may freely assign this Agreement
12
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
to any Company that is directly or indirectly (1) in control of M&I, (2) under
the control of M&I, or (3) under common control with M&I.
d. Section Headings. Section headings are for reference purposes only
----------------
and shall not affect the interpretation or meaning of this Agreement.
e. Notices. All communications or notices required or permitted by
-------
this Agreement shall be in writing and shall be deemed to have been given at the
earlier of the date when actually delivered to an officer of a party or when
deposited in the United States mail, certified or registered mail, postage
prepaid, return receipt requested, and addressed as set forth on the signature
page, unless and until any of such parties notifies the others.
f. No Waiver of Performance. Failure by either party at any time to
------------------------
require performance by the other party to claim a breach of any provision of
this Agreement will not be construed as a waiver of any right accruing under
this Agreement, nor affect any subsequent breach, nor affect the effectiveness
of this Agreement or any part hereof, nor prejudice either party as regards any
subsequent action.
g. Entire Agreement; Conflicting Provisions. This Agreement,
----------------------------------------
together with the Schedules hereto, constitutes the entire agreement between the
Customer and M&I with respect to the subject matter hereof. There are no
restrictions, promises, warranties, covenants, or undertakings other than those
expressly set forth herein and therein. This Agreement supersedes all prior
negotiations, agreements, and undertakings between the parties with respect to
such subject matter. In the event of any conflict between the terms of the main
body of this Agreement and any of the Schedules hereto, the terms of the main
body of this Agreement shall govern.
h. Execution in Counterparts. This Agreement may be executed
-------------------------
simultaneously in any number of counterparts, each of which shall be deemed an
original but all of which shall together constitute one and the same Agreement.
i. Enforceability. The invalidity or enforceability of any provision
--------------
hereof shall not affect or impair any other provisions.
j. Scope of Agreement. If the scope of any of the provisions of the
------------------
Agreement is too broad in any respect whatsoever to permit enforcement to its
full extent, then such provisions shall be enforced to the maximum extent
permitted by law and the parties hereto consent and agree that such scope may be
judicially modified accordingly and that the whole of such provisions of this
Agreement shall not thereby fail, but that the scope of such provisions shall be
curtailed only to the extent necessary to conform to law.
k. Confidentiality of Terms. Customer agrees that neither it, its
------------------------
directors, officers, employees, or agents will disclose this Agreement, or any
of the terms or provisions of this Agreement, to any other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in their names as of the date first above written.
13
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
M&I DATA SERVICES, A DIVISION OF
THE MARSHALL & ILSLEY
CORPORATION, A WISCONSIN
CORPORATION ("M&I")
770 North Water Street
Milwaukee, WI 53202
By: /s/ Larry Brousseau
-------------------------
Name: Larry Brousseau
Title: Vice President
By: /s/ Michael E. Touhey
-------------------------
Name: Michael E. Touhey
Title: Senior Vice President and General
Manager--Trust Services Division
THE BRYN MAWR TRUST COMPANY
Customer")
Street Address
City, State, ZIP
By: /s/ Peter H. Havens
--------------------------
Name: Peter H. Havens
--------------------------
Title: EVP
--------------------------
14
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
ATTORNEY-IN-FACT APPOINTMENT
Customer hereby appoints M&I Date Services, a division of the Marshall &
Ilsley Corporation, a Wisconsin corporation ("M&I") as customer's attorney-in-
fact and empowers M&I to authorize the Internal Revenue Services (IRS) to
release informational documents supplied to the IRS by M&L to states which
participate in the "Combined Federal/State Program." Customer agrees to hold M&I
harmless from any liabilities, claims, expenses, penalties, or damages
(including attorney's fees) which may be assessed or incurred as a result of the
release of information.
THE BRYN MAWR TRUST COMPANY
("Customer")
By: /s/ Peter H. Havens
----------------------------
15
<PAGE>
[LETTERHEAD OF M&I DATA SERVICES APPEARS HERE]
AFFIDAVIT
STATE OF Pennsylvania )
) SS.
COUNTY OF Montgomery )
I, Peter H. Havens , being first duly sworn, on oath, depose and say:
-------------------------
Customer's Representative
1. I am an employee of Bryn Mawr Trust Co. I have personal knowledge of
my employer's practices with regard to procuring and reporting tax
identification number (TINs) and authority to execute this Affidavit on my
employer's behalf.
2. Bryn Mawr Trust Co. has complied with all laws, regulations,
procedures, and requirements in attempting to secure correct TINs for its
payees. This compliance has been pursued with due diligence, and any failure to
secure correct TINs is due to reasonable cause.
/s/ Peter H. Havens
-----------------------------------------
Customer's Representative
Subscribed and sworn to before me
this 2nd day of May, 1997.
/s/ Irene E. Del Grosso
- -----------------------
Notary Public
- ----------------------
My Commission expires: 3-3-2001
------------
[SEAL OF NOTARY PUBLIC
APPEARS HERE]
16
<PAGE>
EXHIBIT A
SERVICES
A. Trust Services
The services described herein refer only to the processing and reporting
services for Estates, Trust Under Will, Court Accounts, Trusts Under
Agreement, Insurance Trusts, Agencies, Custodian/Safekeeping, Corporate
Trusts, Pension/Profit Sharing accounts and Internal accounts including
Common Trust Funds (CTF) and Collective Investment Funds (CIF).
The banks and/or barnches included in this services proposal are:
(Customer's) Office
1. M&I shall provide complete processing services for the Customer as more
fully described in the Trust System Documentation manuals as of the
Customer's Conversion Date of November 28, 1997.
a. User Manual Volume 1
b. User Manual Volume 2
c. User Manual Volume 3
d. User Manual Volume 4
e. Reports Usage Manual 1
f. Reports Usage Manual 2
g. Special Processing Volume 1
h. Special Processing Volume 2
i. Special Processing Volume 3
j. Special Processing Volume 4
M&I will provide the Customer with two (2) complete sets of user
documentation manuals at no charge.
2. The on-line system will be available for use Monday through Saturday
and Sunday, 6 a.m.- 6 p.m., CDT, CST. On-line availability for Sunday
may vary due to M&I's requirement to perform routine maintenance to the
system.
1-A
<PAGE>
EXHIBIT A
SERVICES
PAGE 2
3. M&I shall maintain a customer support center as part of their services
to the Customer. The support center will maintain a toll free (800)
number and be staffed from 8 a.m. to 5 p.m., CST, CDT, Monday through
Friday excluding national holidays.
4. M&I shall perform a conversion from the Customer's current system as
defined in the M&I Conversion Manual, and training will be completed at
the Customer's site as further outlined in said manual.
5. The number of authorized copies of TrustDesk(TM) software included in
this Agreement is set by the Customer through written notification to
their designated M&I product support representative. Customer may
substitute personal computers (workstations) on which TrustDesk(TM)
software is used however, the total number of copies cannot exceed the
number authorized above. The number of authorized copies of
TrustDesk(TM) software included in this Agreement is seventy (70).
Additional copies can be authorized by subsequent written notification
to your M&I product support representative.
M&I shall provide Customer with up to 24 hours of phone support in the
installation of TrustDesk(TM) software on Customer's workstations. Any
additional time requested by the Customer will be billed at M&I's then-
current programming rates plus travel and living expenses if any, for
on-site support.
6. Customer will have access to M&I's CSF formatted statements. Any
modifications to these statements would require custom programming and
result in additional charges. Any technical assistance required from M&I
in obtaining, modifying, or configuring printers would be billed at
standard programming rates (Exhibit B). The following statement types
are available to the Customer:
. Employee Benefit . Income & Principal Cash
. Graphical Asset . Landscape Single Cash
. Graphical Income & Principal . Single Cash
. Investment Model
Any additional CSF statements would be available at additional cost.
Printing of CSF statements at Customer site is per M&I print
specifications. Printing by M&I is available at an additional cost.
2-A
<PAGE>
EXHIBIT A
SERVICES
PAGE 3
7. Customer will provide the following resources during the conversion
process:
Customer will maintain required staffing levels during the conversion
process to achieve all conversion objectives as stated in the conversion
project plan.
Customer will identify and assign an existing staff manager as their
conversion project manager. Customer understands the duties and
responsibilities of their project manager are critical to the overall
conversion effort and will provide the time required to successfully
address the stated duties and responsibilities. Customer will use its
best efforts to ensure the project manager assignment does not change
during the conversion process.
Customer's conversion project manager will develop on internal
procedures manual available to Customers' staff no later than two weeks
prior to conversion date. M&I will assist customer by providing a
procedures manual template.
3-A
<PAGE>
EXHIBIT B
CHARGES
The Customer's total charges for the Services proposed will consist of:
1. Processing Charges.
M&I Trust Service Fees as outlined in Exhibit B-1.
2. Programming Rates. (Based on then-current rates--$120 per
hour 1997 rate)
M&I offers the Customer programming services based on a
time-and-material basis plus reasonable travel and living
expenses if on-site meetings are required. Any programming
commitments must be mutually agreed upon for scope and
completion time frames.
3. Product Support Rates. (Based on then-current rates--$1,000
per day 1997 rate)
M&I offers the Customer optional training/consulting services.
These are based on a time-and-material basis plus reasonable
travel and living expenses. The rate is based on an 8-hour day
(hours in excess of 8 hours are billed at $125 per hour)
including travel time to/from Customer.
4. Communication Charges.
M&I uses third-party suppliers for telecommunication services.
An estimate of these charges is outlined in Exhibit C.
5. Conversion Charges.
a. Automated file conversion standard items (master files:
account, security, holdings, name/address, remittance,
memos, tax information, pension payment, and cash) as
identified in the M&I Conversion Manual.
Reasonable programmer and product support personnel travel
and living expenses for conversion trips.
Conversion support as identified in the M&I Conversion
manual.
1-B
<PAGE>
EXHIBIT B
CHARGES
PAGE 2
M&I will develop a detailed Conversion and Training Calendar for the
customer outlining the support required for:
. Definition and review
. Training, including TrustDesk(TM)
. Conversion week
. Follow-up visit
. Not to exceed 40 man days
Conversion Charge $35,000. Payable upon execution of this agreement,
plus travel and living expenses incurred by M&I and invoiced to the
Customer.
b. Optional conversion items (as identified in the M&I Conversion Manual,
Section III, Optional Tax Reporting, Check Reconcilement, Performance
Measurement, Additional Exception Reporting) as required by Customer.
. M&I programming at rates shown plus reasonable travel and living
expenses.
. Training billed at standard M&I product support rates shown plus
reasonable travel and living expenses.
. M&I will convert Customer's performance measurement data based on
the specifications as designated in Dan Winkler's letter dated
December 31, 1996. Customer must provide the data in the stated
formats in order to automatically convert the data. All procedures
must be followed and results must be verified by Customer upon
conversion. Conversion charge will be $20,000.
. M&I will bridge Customer's 1099 files to CLR Fast-Tax.
Conversion charge of $4,800 will be waived.
c. Hardware/Software Consulting (including but not limited to
TrustDesk(TM) software support, Local Area Network (LAN) support,
personal computer support, and mainframe/terminal support). Any time
spent by M&I as requested by the Customer will be billed at M&I's
standard programming rates plus expenses.
2-B
<PAGE>
EXHIBIT B-1
TRUST SERVICE FEES
A. M&I is offering the Customer a "structured price" in determining their
annual charge.
The annual fee per account is $80.
The annual fee per low-activity accounts is $40.
Estimated annual cost based on (1,275) accounts = $102,000.
=======
Estimated annual cost based on (25) low-activity accounts = $1,000.
=====
Low-activity accounts have less than 36 transactions per year (not
including cash management) and no more than semi-annual statements.
The number of open accounts processed (including house accounts, fund
accounts, combined accounts, etc.) will be counted monthly to determine the
appropriate processing fee. The fee will be billed monthly. M&I is entitled
to an annual price increase not to exceed CPI-U (Consumer Price Index
Urban). The total of such increase in any given one (1) year period shall
not exceed five percent (5%) for the term of this Agreement.
1. Any price increase will take effect on January 1 each year starting on
January 1, 1999.
2. The minimum annual charge for Trust Services is $102,000.
B. M&I Data Services, a division of the Marshall & Ilsley Corporation, a
Wisconsin corporation ("M&I"), reserves the right to charge separately for
new optional services added to their Trust Service after the customer's
Conversion Date November 28, 1997. The Bryn Mawr Trust Company will be
fully operational on the M&I Trust System on the morning of December 1,
1997, if Bryn Mawr Trust Company meets all of their conversion requirements
as stated in the conversion document approved by the Bryn Mawr Trust
Company.
C. M&I Data Services, a division of the Marshall & Ilsley Corporation, a
Wisconsin corporation ("M&I"), uses several outside vendors (pricing
service, communications, corporate notification services, etc.) in
providing their Trust Services. Any pass-through charges or price increases
from these services or any new optional services added by M&I will be
passed through to the Customer based on their effective date to M&I.
3-B
<PAGE>
EXHIBIT B-1
TRUST SERVICE FEES
PAGE 2
D. M&I Data Services, a division of the Marshall & Ilsley Corporation, a
Wisconsin corporation ("M&I"), has included daily product support personnel
time for the Customer based on the schedule shown below. Any hours required
by the Customer in excess of this will be billed at M&I's standard product
support rate of $125 per hour.
Product Support Hours Schedule
------------------------------
Contract Year Support Hours
------------- -------------
1 300
2 250
3 and up 250
Customer Support Guidelines (for items included in annual support hours):
-----------------------------------------------------------------------
Questions related to standard system functions and their usage as noted in
the M&I Trust Services User Documentation or any processing issues.
Billable items at standard product support rates.
------------------------------------------------
Questions related to the following:
Trust business/industry
Consultative advice
Procedures; i.e., how to set up, change
Trust Policies and Procedures manual assistance
Equipment setup, changes
Statement customizing
Report writers designed
4-B
<PAGE>
EXHIBIT C
COMMUNICATION COST ESTIMATE
Monthly Installation
Charge Purchase Charge
------- -------- ------------
Charge for 56 KB Circuit and $1,000 $5,000 $2,350
Modems $65
Line circuit and modems selected by M&I.
1-C
<PAGE>
EXHIBIT D
TRUST SERVICE FEES
The following charges are not included in Customer's "Structured Price" and are
applicable only if requested by Customer.
A. Vendor pass-through charges:
. Corporate action notification $1.95 per account/per year
$8,250 maximum per
year/charged annually
. CMO factor service $1.56 per month per CMO
B. M&I Data Services, a division of the Marshall & Ilsley Corporation, a
Wisconsin corporation ("M&I"), offers services not included in the annual
fee to the Customer. The services not included are:
. TrustWeb $3,000 start-up fee
- 0-1,000 Acct. on the M&I Trust System $2,000 per year
- 1,001-2,000 Accts. on the M&I Trust System $4,000 per year
- 2,001-3,000 Accts. on the M&I Trust System $6,000 per year
- 3,001-4,000 Accts. on the M&I Trust System $8,000 per year
- 4,001-5,000 Accts. on the M&I Trust System $10,000 per year
- 5,001 Accts. + on the M&I Trust System $12,000 per year
. STAR View (on-line report viewing) $500 start-up fee
$100 base fee per month
$100 training fee per
video
- Load Fee .0033 per page
- Disk Storage No Charge
- Tape Storage .000008 per page per day
- Optical Storage:
7 Years .007 per page
10 Years .008 per page
15 Years .009 per page
20 Years .01 per page
Statement Viewing .01 per statement page
loaded to optical
. Report printing at M&I $1.90 per 1,000 lines
. TrustReport Statement Print Destination
Charge $2,200 per occurrence
- TrustReport Statement Print at M&I .13 per page
. Courier Costs At cost
. Forms Cost, plus 15 percent
. Client Terminal Access Setup $90 each
Monthly $65 each
. Loan System Interface Billed by M&I loan area
1-D
<PAGE>
EXHIBIT D
TRUST SERVICE FEES
(PAGE 2)
. ACH (charges from ACH System) $.07 per transaction
. M&I Workshops $75 per attendee per class
. Documentation (after initial copies) $500 per set
. Deconversion Tapes (M&I format) $2,000 per tape
Plus any programming or product
support time at the M&I rates
shown in Exhibit B (Charges)
. Post-deconversion On-line Access $2,000 per month base fee
for up to three months,
plus applicable usage
charges and
miscellaneous charges
. Tape/Transmission Handling $38/tape and
$10.50/transmission
. Additional Copies of TrustDesk(TM) $1,500 per copy plus,
Software $450 per year
maintenance on each
additional copy
C. The Customer has the option to add an affiliate bank for $200 per bank per
month plus the standard account charge shown in item B-1.A.
2-D
<PAGE>
EXHIBIT 13
49
<PAGE>
B R Y N M A W R B A N K C O R P O R A T I O N
- --------------------------------------------------------------------------------
1 9 9 7 A N N U A L R E P O R T
[BRYN MAWR BANK LOGO APPEARS HERE]
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Five-Year
Compound
1997 1996 Change Growth Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year Net interest income $ 18,368 $ 17,847 3% 6%
(dollars in thousands) Other income 11,749 10,423 13 10
Other expenses 20,837 18,978 10 5
Net income 6,130 6,042 1 14
- -------------------------------------------------------------------------------------------------------------
At year-end Total assets $ 374,210 $ 345,747 8% 4%
(dollars in thousands) Total net loans 264,484 255,245 4 9
Total deposits 328,806 303,183 8 4
Shareholders' equity 39,349 35,808 10 13
- -------------------------------------------------------------------------------------------------------------
Per common share Earnings per common share $ 2.79 $ 2.76 1% 14%
Earnings per common share -
assuming dilution 2.67 2.66 - 13
Dividends declared 0.72 0.92 (22) N/A
Book value 18.00 16.27 11 13
Closing price 51.00 27.25 87 35
- -------------------------------------------------------------------------------------------------------------
Selected ratios Return on average assets 1.74% 1.79%
Return on average
shareholders' equity 16.45% 18.16%
</TABLE>
C O N T E N T S 2 CHAIRMAN'S LETTER
4 THE YEAR IN REVIEW
11 BANK INFORMATION
12 CORPORATE INFORMATION
1
<PAGE>
1 9 9 7 A N N U A L R E P O R T
DEAR SHAREHOLDER:
As change envelopes the business of banking, we're trying hard to preserve
our core -- the best service you'll ever find in a bank. And with service as our
keystone, we're establishing growing streams of revenue from lines of business
related to the financial needs and wants of our customers.
1997 was a watershed for your Corporation in that regard. We established two
new and powerful business lines -- Insurance Counsellors of Bryn Mawr and Tax
Counsellors of Bryn Mawr -- which, when augmented by the natural expansion of
our investment management and trust services, round out our service menu to be
competitive in most ways with the big banks.
We are equipped to do traditional banking -- checking accounts, CDs,
business loans, home mortgages (anywhere in the continental U.S.) -- in addition
to investment management, wealth transfer counsel, foundation management,
employee benefits, fiduciary, and full family office services. And, all that
with truly fine personal attention and professionalism.
Now, let's look at how we performed in 1997 as we moved along.
Net income per share was $2.79 in 1997 compared to $2.76 in 1996, $2.51 when
adjusted for the 25 cents nonrecurring gain, an 11% increase. 1996 results
included a nonrecurring gain from the sale of real estate acquired by the Bank
some years ago in settlement of a defaulted loan, which was partially offset by
unrelated and also nonrecurring expenses. The after-tax effect of these gains
and expenses increased per share earnings by 25 cents in 1996, so, exclusive of
these nonrecurring amounts, comparable per share net income was up 11% in 1997.
The dividend paid in 1997 was 72 c, a 20% increase from regular
quarterly dividends of 60 c in 1996. In January 1998, the quarterly dividend
was increased 28%, from 18 c to 23 c per share.
The operating gains came from the investment management and trust business
and from the residential mortgage origination, sale, and servicing business, not
from traditional banking. No surprise though, for it's the industry's
traditional banking business that's struggling to become "right sized." The
consolidation in the banking industry comes from the need to reduce the number
of banks, branches, and people offering traditional banking.
2
<PAGE>
B R Y N M A W R B A N K C O R P O R A T I O N
- --------------------------------------------------------------------------------
Investment management and trust activity produced 30% of consolidated
operating profit in 1997, up from 23% in 1996. Mortgage banking produced 10%, up
from 9% in the previous year, and our traditional banking business produced 60%
of consolidated operating profit, down from 68% the year before.
We continued to provide programs to assist low and moderate income families in
our community in obtaining their first home and educating their children. We're
mindful of the benefit that diversity provides everyone in our community.
We've stepped up our ongoing effort to assist our employees, in every way
possible, in increasing their technical proficiency and professional skills.
So, what's ahead for Bryn Mawr Bank Corporation? Well, our banking business
feels better to me as we begin 1998. We've realigned the Bank's leadership to
meet the challenges we face, which, indeed, are abundant, and we've expanded our
service lines remarkably. And the concern caused by mergers in our marketplace
produces business here.
Though the future cannot be readily seen, I've never felt more strongly that
our great little institution will successfully meet the needs of its customers
and find ways to do so profitably. I'm enormously grateful that so many
shareholders have chosen to do business with the Bank, and for the wonderful men
and women I'm privileged to work with.
And, finally, if there's ever a question about the Bank, or what it's doing, I
urge you to simply call me (610-526-2300) to find out, if you haven't, just what
I mean by, "Simply the best service you'll ever find in a bank."
Sincerely,
/s/ Robert L. Stevens
Robert L. Stevens
Chairman
February 24, 1998
3
<PAGE>
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1 9 9 7 A N N U A L R E P O R T
THE YEAR IN REVIEW
In 1997, Bryn Mawr Bank Corporation made great strides in strengthening its
position to meet the challenges resulting from the dramatic changes taking place
in the financial services industry. New services were added. Technological
capabilities continued to be upgraded. Programs were instituted to increase the
proficiency and knowledge of all employees. Outstanding professionals were added
to the staff. Even the physical facilities were enhanced.
TAX ADVISORY UNIT ESTABLISHED
In July, Bryn Mawr Bank Corporation announced the formation of a wholly-owned
subsidiary, Tax Counsellors of Bryn Mawr, to provide a broad range of tax
services for corporations, family-owned businesses, entrepreneurs,
professionals, and wealthy individuals. Tax Counsellors offers tax planning and
consulting to clients in a variety of situations, such as selling a business,
advising on IRA assets, investing in closely held companies, administering
family limited partnerships, counseling on real estate decisions, and helping
executives with stock option issues.
Principals of the new subsidiary are President and Chief Executive Officer
William H. Giese, CPA, a former "big six" tax partner with 29 years of tax
consulting experience; and Vice President R. Ross Collins, Jr., CPA, who has
over 23 years of accounting, tax, and business experience.
[PHOTO OF JOHN G. "JACK" DANIEL, LORRAINE T. "JANE" GARDNER, AND THOMAS M. PETRO
APPEARS HERE]
JOHN G. "JACK" DANIEL (SEATED) AND
LORRAINE T. "JANE" GARDNER,
INSURANCE COUNSELLORS OF BRYN
MAWR, WITH THOMAS M. PETRO,
COMMUNITY BANKING DIVISION.
4
<PAGE>
B R Y N M A W R B A N K C O R P O R A T I O N
- --------------------------------------------------------------------------------
[PHOTO OF WILLIAM H. GIESE AND R. ROSS COLLINS, JR. APPEARS HERE]
WILLIAM H. GIESE AND R. ROSS COLLINS, JR.,
TAX COUNSELLORS OF BRYN MAWR.
INSURANCE PRODUCTS OFFERED
Taking advantage of new state legislation which allows banks to sell insurance,
the Bank formed Insurance Counsellors of Bryn Mawr with John G. Daniel as
president and chief executive officer, and Lorraine T. "Jane" Gardner as vice
president. Jack has more than 30 years of experience in the insurance industry.
Jane, a chartered financial planner, has over 20 years of experience in both the
banking and insurance industries. To assist in this new venture, the Bank has
established a business relationship with The Simkiss Agency, Inc., a full
service brokerage firm that has been doing business for over 36 years and is
ranked among the top 100 insurance brokers in the country.
Insurance Counsellors provides a complete array of personal insurance
programs, including: insurance for both primary and secondary homes, automobile,
watercraft and aircraft insurance, personal excess and umbrella liability
insurance, as well as insurance for valuable personal property such as fine art,
furs and jewelry. Through its association with Simkiss, Insurance Counsellors
has the ability to design, implement, and maintain commercial insurance
programs, such as: workers compensation, property insurance, professional
liability, directors and officers liability, environmental practices, and
employment practice liability.
[LINE GRAPH APPEARS HERE]
FOUNDATION EXPERT HEADS UP FAMILY OFFICE
Early in 1997, Herbert T. McDevitt, who has over 30 years of foundation, legal,
and federal government experience, joined the Bank as senior vice president to
head The Family Office, which provides an intergenerational approach to wealth
management for families, individuals, and foundations. Services include
investment management, estate and trust planning, special loans, tax planning,
real estate management, and other general administrative services.
SUPERIOR INVESTMENT PERFORMANCE
The performance record of our investment managers continued to be impressive.
This was demonstrated by the results achieved by The Bryn Mawr Trust Qualified
Equity Fund, which, as of December 31, 1997, showed an average annual total
return of 30.1% for
5
<PAGE>
- --------------------------------------------------------------------------------
1 9 9 7 A N N U A L R E P O R T
1997; 32.2% for the three-year period ending December 31, 1997; and 21.8% for
the five-year period ending December 31, 1997.
The expertise of our investment professionals has become even more apparent to
the investment community, as such respected publications as The Wall Street
Journal, The New York Times, and The Philadelphia Inquirer have quoted
Investment Counsellors' Managing Directors Richard I. Sichel and Betty K.
Taylor.
EMPLOYEE BENEFIT PLANS ENHANCED
In 1997, Bryn Mawr Trust increased the flexibility of its Group 401(k) program
with the introduction of its three level plan. The Platinum 401(k), "Manager of
Managers," is designed for plans with 100 to 25,000 participants with $2 million
and above in plan assets. The Gold 401(k), "Multiple Fund Families," is designed
for plans with 100 to 5,000 participants with $1 million and above in plan
assets. The Silver 401(k), "Multiple Funds," is designed for plans of 25 to 250
participants and $250,000 and above in plan assets.
TECHNOLOGY UPGRADES
In July, the Bank launched a new windows-based version of its PC Banker product
for business, which improves management of business cashflows. The Bank also
enhanced its Cash Management Sweep Account, which now automatically links a
business checking account with a Fidelity Investments' money market mutual fund.
In late November, after many months of intensive training, the Investment
Management & Trust Division converted its accounting system to a new
user-friendly, state-of-the-art product called "TrustDesk," provided by Marshall
& Isley of Brown Deer, Wisconsin. The new system allows clients to access their
accounts via Internet and will allow for the increasing automation of more
functions.
The Bank entered an agreement with Centrax Services, Inc., of Dallas, Texas,
for a marketing central information file system called "Marquis." This software
will enable the Bank to determine the most profitable customers, capitalize on
cross-selling opportunities, understand marketing potential through
demographics, and generate targeted mailings or calling campaigns.
In April, Bryn Mawr Trust officially became part of the "net" with each
employee obtaining an Internet e-mail address.
The Bank's first ATM machine, installed at the Bryn Mawr office in 1981, has
been replaced by a state-of-the-art machine, capable of cashing checks,
including coin, and dispensing coupons and postage stamps. These exciting new
features are planned to be made available in 1998. New machines will be
installed in Paoli and Wynnewood, and the ATM at Havertown has been upgraded to
dispense stamps. The additional expenses generated by these upgrades have been
partially offset by fee income resulting from the institution, in February, of a
surcharge of $1.00 for each cash withdrawal made by non-Bryn Mawr Trust ATM
cardholders.
[LINE GRAPH APPEARS HERE]
[LINE GRAPH APPEARS HERE]
6
<PAGE>
B R Y N M A W R B A N K C O R P O R A T I O N
- --------------------------------------------------------------------------------
[PHOTO OF RICHARD I. SICHEL, MICHELE M. FRITZ, PETER H. HAVENS, AND HERBERT
T. MCDEVITT APPEARS HERE]
RICHARD I. SICHEL, MICHELE M. FRITZ,
PETER H. HAVENS, AND HERBERT T. MCDEVITT,
INVESTMENT MANAGEMENT & TRUST DIVISION.
Telephone Banker, the Bank's electronic voice response system, has been
modified to allow both personal and business customers to transfer money from a
Bryn Mawr Trust checking or savings account to make a regular payment on a Bryn
Mawr Trust loan.
COMMERCIAL LOAN AREA RENOVATED
After almost three months of major construction, the completely renovated
commercial loan area was ready for occupancy in late August. The handsomely
appointed area features 19 open, interconnected work modules, and two conference
rooms. Barbara Gisel Design, of Haverford, was responsible for the interior
design, and Wm. Powell Dilworth & Sons, of Bryn Mawr, served as general
contractor. The open design allows for greater interaction among staff members,
while providing areas of complete privacy for conferences with clients.
PROFESSIONAL DEVELOPMENT
Some 50 staff members are participating in a special program preparing them for
attainment of the professional designation of Certified Financial Planner (CFP).
This unique program, conducted through The American College, is part of an
ongoing effort to set Bryn Mawr Trust apart from its competition by sharpening
the skills of our staff in providing advice to clients and prospects. The
successful completion of five courses is required before candidates may sit for
the CFP examination. The first course, Fundamentals of Estate Planning, ended in
May, while the second course, Planning for Retirement Needs, concluded in
December. The three remaining courses are: Insurance and Financial Planning,
Income Taxation, and Investments.
[LINE GRAPH APPEARS HERE]
7
<PAGE>
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1 9 9 7 A N N U A L R E P O R T
[PHOTO OF WILLIAM B. SHIRDAN, DONALD B. KRIEBLE, AND STEPHEN J. COLLAR
APPEARS HERE]
WILLIAM B. SHIRDAN, DONALD B. KRIEBLE,
AND STEPHEN J. COLLAR, CONSUMER CREDIT
SERVICES.
BANK-SPONSORED SEMINARS
In conjunction with the Physicians Initiative Program instituted in 1996, the
Bank sponsored a seminar at The American College for lawyers and accountants
providing services for medical professionals. The topic was "Valuation and
Planning for Physician Practices," conducted by Kirk A. Rebane, ASA, CFA, of
Haverford Capital Advisors, Inc., Thomas P. Langdon, JD, LLM, ChFC, CFA, CFP,
and Richard I. Sichel, managing director of Investment Counsellors of Bryn Mawr
and chief investment officer of The Bryn Mawr Trust Company.
Attorneys and accountants were invited to a seminar entitled "Qualified
Retirement Plans," with speakers: John M. Bernard, Esq., partner at Ballard,
Spahr, Andrews & Ingersoll; David A. Littel, JD, associate professor of taxation
at The American College; Henry J. Donner, Esq., senior member and partner of
Jacoby Donner, PC, and Vice President Michele M. Fritz, Employee Benefits, The
Bryn Mawr Trust Company.
Richard W. Lang, PhD, senior vice president and director of economic research
at the Federal Reserve Bank of Philadelphia, gave a presentation entitled
"Economic Update & 1998 Forecast" in the Bank's Centennial Wing to invited
business professionals.
The Financial Life Cycle Planning Series was initiated with a
well-attended program entitled "How to Preserve Your Estate and
Protect Your Wealth." Keynote speaker was Frank B. Weisz, JD,
LLM, president of Frank B. Weisz and Associates. Also participat-
ing in the panel discussion were William H. Giese, CPA, and
8
<PAGE>
B R Y N M A W R B A N K C O R P O R A T I O N
- -------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
R. Ross Collins, Jr., CPA, both of Tax Counsellors of Bryn Mawr, as well as Vice
President Randy G. Thomas, CPA, of Bryn Mawr Trust's Tax Department.
The Bank sponsored, along with The Boettner Center of Financial Gerontology,
Main Life Health/Jefferson Health System, and The American College, the
1997-1998 Seminar Series: "Charting the Course," a support program guiding
professionals, caregivers, and families through the challenges of Alzheimer's
disease.
PROVIDING LEADERSHIP AND SUPPORT IN THE COMMUNITY
In the rapidly changing healthcare environment, Bryn Mawr Trust recognized the
importance of providing its resources, financial expertise, and experienced
personnel to help ensure the proper balance of power among physicians,
hospitals, and insurers. The Bank has supported the Millennium Physicians
Organization and the Chester County Physicians Organization. Through the efforts
of Group Vice President William J. Fink, CPA, who has acted as a financial
consultant, the two organizations are pooling their resources to form a greater
regional umbrella group known as the
[PHOTO OF JUNE M. FALCONE, WALTER SMEDLEY, III, ROBERT J. RICCIARDI, AND JOSEPH
G. KEEFER APPEARS HERE]
JUNE M. FALCONE, BANKING OPERATIONS,
WITH WALTER SMEDLEY, III,
ROBERT J. RICCIARDI, AND JOSEPH G. KEEFER,
COMMERCIAL & REAL ESTATE LENDING
SERVICES.
9
<PAGE>
- --------------------------------------------------------------------------------
1 9 9 7 A N N U A L R E P O R T
Renaissance Medical Alliance. Senior Vice President Thomas M.
Petro is co-chair of the Renaissance Infrastructure Committee.
It was announced in November that Chairman Robert L. Stevens had been
appointed chairman of The Main Line Chamber of Commerce for 1998. He also serves
as chairman of the Bryn Mawr Hospital Foundation, is a trustee of the Boettner
Institute of The University of Pennsylvania, sits on the Community Advisory
Council of Eldernet, and is a board member of The Devon Horse Show and Community
Fair which supports The Bryn Mawr Hospital.
As an outgrowth of the development of the Bryn Mawr "Stake Holders" initiative
spearheaded by Senior Vice President Paul J. Kistler, Bryn Mawr has become part
of a Lower Merion Township-funded market study and consulting firm analysis to
resolve issues pertaining to the Bryn Mawr commercial district revitalization
plan and other community concerns. This has involved focus groups, phone
surveys, and a "Community Vision Session," an open forum attended by about 80
concerned community members.
PROFESSIONAL LEADERSHIP
Senior Vice President & Auditor, Leo M. Stenson, CIA, CPA, served as general
chairman of The Institute of Internal Auditors' 56th International Conference
held from July 6 through July 9 at The Philadelphia Marriott Hotel. The purpose
of the program was to provide a forum for the exchange of ideas and the sharing
of initiatives. The conference attracted 1,500 internal auditors and executives
from around the world.
POSITIONING FOR THE FUTURE
In November, several internal management changes were made to enable the Bank to
reposition itself for future growth as we approach the dawn of the new
millennium. Robert L. Stevens remains chairman, president, and chief executive
officer of the Bank and Corporation, but will devote more of his time to
developing new revenue streams for the Corporation. Samuel C. Wasson, Jr., has
assumed the role of vice chairman of the Bank and is responsible for most of the
day-to-day business. He remains secretary of the Corporation.
Executive Vice President Robert J. Ricciardi now heads the Loan
Committee and is chief credit policy officer responsible for the
Bank's lending policy. Senior Vice President Joseph G. Keefer has
been designated chief lending officer.
Senior Vice President Thomas M. Petro has taken over Community Banking and
oversees the complete branch office network. Executive Vice President Peter H.
Havens continues to lead the initiative to increase net revenues from the
investment management, fiduciary, wealth transfer, foundation, family office,
and employee benefits business.
[LINE GRAPH APPEARS HERE]
[LINE GRAPH APPEARS HERE]
10
<PAGE>
B R Y N M A W R B A N K C O R P O R A T I O N
- --------------------------------------------------------------------------------
THE BRYN MAWR TRUST COMPANY
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
610.525.1700
- --------------------------------------------------------------------------------
Senior Management:
- --------------------------------------------------------------------------------
Robert L. Stevens*
Chairman, Chief Executive Officer,
and President
Samuel C. Wasson, Jr.*
Vice Chairman and Secretary
Peter H. Havens
Executive Vice President,
Investment Management & Trust
Robert J. Ricciardi*
Executive Vice President and
Chief Credit Policy Officer
Joseph H. Bachtiger
Senior Vice President, Trust Administration
June M. Falcone
Senior Vice President, Banking Operations
Joseph G. Keefer
Senior Vice President and
Chief Lending Officer
Paul M. Kistler, Jr.
Senior Vice President,
Banking Operations, Facilities, Human
Resources, and Information Systems
Donald M. Krieble
Senior Vice President,
Consumer Credit Services
Herbert T. McDevitt
Senior Vice President, Family Office
William R. Mixon
Senior Vice President,
Information Systems
Thomas M. Petro
Senior Vice President, Community Banking
Joseph W. Rebl*
Senior Vice President, Finance, and Treasurer
Walter Smedley, III
Senior Vice President, Commercial & Real
Estate Lending Services
Leo M. Stenson
Senior Vice President and Auditor,
Audit and Security
William J. Fink
Group Vice President, Commercial & Real
Estate Lending Services
Carmen L. Fiorentino
Group Vice President, Commercial & Real
Estate Lending Services
Richard M. Fuchs
Group Vice President, Branch Operations
Geoffrey L. Halberstadt
Group Vice President, Commercial & Real
Estate Lending Services
*Also officer of the Corporation.
- --------------------------------------------------------------------------------
Branch Offices:
- --------------------------------------------------------------------------------
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
18 West Eagle Road
Havertown, Pennsylvania 19083
39 West Lancaster Avenue
Paoli, Pennsylvania 19301
330 East Lancaster Avenue
Wayne, Pennsylvania 19087
312 East Lancaster Avenue
Wynnewood, Pennsylvania 19096
- --------------------------------------------------------------------------------
Investment Management & Trust Division:
- --------------------------------------------------------------------------------
No. 10 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania 19010
- --------------------------------------------------------------------------------
Limited Service Offices:
- --------------------------------------------------------------------------------
Beaumont at Bryn Mawr Retirement
Community
Bryn Mawr, Pennsylvania
Bellingham Retirement Living
West Chester, Pennsylvania
Martins Run Life Care Community
Media, Pennsylvania
One Tower Bridge
West Conshohocken, Pennsylvania
The Quadrangle
Haverford, Pennsylvania
Radnor Corporate Center
Radnor, Pennsylvania
Waverly Heights
Gladwyne, Pennsylvania
- --------------------------------------------------------------------------------
Other Financial Services:
- --------------------------------------------------------------------------------
BMT Mortgage Company
a division of The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
William F. Mannion, Jr., Managing Director
Patrick J. Keenan, Managing Director
Insurance Counsellors of Bryn Mawr, Inc.
a subsidiary of The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
John G. Daniel, President and Chief Executive Officer
Investment Counsellors of Bryn Mawr
a department of the Investment Management & Trust Division
Two Tower Bridge
One Fayette Street, Suite 150
Conshohocken, Pennsylvania 19428
Richard I. Sichel, Managing Director and Chief Investment Officer
Tax Counsellors of Bryn Mawr, Inc.
a subsidiary of Bryn Mawr Bank Corporation
90 Cricket Avenue
Ardmore, Pennsylvania 19003
William H. Giese, President and Chief Executive Officer
11
<PAGE>
B R Y N M A W R B A N K C O R P O R A T I O N
- --------------------------------------------------------------------------------
1 9 9 7 A N N U A L R E P O R T
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Directors:
- --------------------------------------------------------------------------------
Darrell J. Bell
Retired Senior Vice President,
Main Line Health, Inc.
Richard B. Cuff
Chairman, Cuffco, Inc.
Warren W. Deakins
Self-Employed, Insurance Sales
William Harral, III
Senior Counselor, The Tierney Group
Peter H. Havens
Executive Vice President,
The Bryn Mawr Trust Company
Wendell F. Holland, Esq.
Vice President, American Water Works
Service Company, Inc.
Sherman R. Reed, 3rd
Builder and Developer
Phyllis M. Shea
Attorney-at-Law, Shea and Shea
Robert L. Stevens
Chairman, Chief Executive Officer, and
President of Bryn Mawr Bank Corporation
and The Bryn Mawr Trust Company
B. Loyall Taylor, Jr.
President, Taylor Gifts, Inc.
Samuel C. Wasson, Jr.
Secretary of Bryn Mawr Bank Corporation
and Vice Chairman and Secretary of
The Bryn Mawr Trust Company
Thomas A. Williams
Vice President, Secretary/Treasurer,
Houghton International, Inc.
- --------------------------------------------------------------------------------
Annual Meeting
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Bryn Mawr Bank Corporation will be held in
The Centennial Wing of The Bryn Mawr Trust Company, located at the corner of
Lancaster Avenue and Morton Road in Bryn Mawr, Pennsylvania, on Tuesday, April
21, 1998, at 2:00 p.m.
- --------------------------------------------------------------------------------
Market Makers:
- --------------------------------------------------------------------------------
Janney Montgomery Scott, Inc.
Philadelphia, Pennsylvania
F.J. Morrissey & Co., Inc.
Philadelphia, Pennsylvania
McConnell Budd & Downes
Morristown, New Jersey
Herzog, Heine, Geduld, Inc.
New York, New York
- --------------------------------------------------------------------------------
Corporate Headquarters
- --------------------------------------------------------------------------------
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
(610)526-2302
- --------------------------------------------------------------------------------
Auditors
- --------------------------------------------------------------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103-2962
- --------------------------------------------------------------------------------
Legal Counsel
- --------------------------------------------------------------------------------
Monteverde, McAlee, FitzPatrick,
Tanker & Hurd, P.C.
One Penn Center at Suburban Station
1617 John F. Kennedy Boulevard
Suite 1500
Philadelphia, Pennsylvania 19103-1815
- --------------------------------------------------------------------------------
Stock Listing
- --------------------------------------------------------------------------------
Bryn Mawr Bank Corporation common stock is traded over-the-counter and is listed
on the NASDAQ National Market System under the symbol BMTC.
- --------------------------------------------------------------------------------
Registrar & Transfer Agent
- --------------------------------------------------------------------------------
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
- --------------------------------------------------------------------------------
Form 10-K
- --------------------------------------------------------------------------------
A copy of the Corporation's Form 10-K, including financial statement schedules
as filed with the Securities and Exchange Commission, is available without
charge to shareholders upon written request to Samuel C. Wasson, Jr., Secretary,
Bryn Mawr Bank Corporation, 801 Lancaster Avenue, Bryn Mawr, Pennsylvania
19010-3396, or via e-mail to [email protected].
- --------------------------------------------------------------------------------
Equal Employment Opportunity
- --------------------------------------------------------------------------------
The Corporation continues its commitment to equal opportunity employment and
does not discriminate against minorities or women with respect to recruitment,
hiring, training, or promotion. It is the policy of the Corporation to comply
voluntarily with the practices of affirmative action.
12
<PAGE>
BRYN MAWR BANK CORPORATION
- --------------------------------------------------------------------------------
1997 ANNUAL REPORT
FINANCIAL SECTION
[LOGO OF BRYN MAWR TRUST COMPANY APPEARS HERE]
CONTENTS
1 Selected Financial Data
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
17 Consolidated Balance Sheets
18 Consolidated Statements of Income
19 Consolidated Statements of Cash Flows
20 Consolidated Statements of Changes in
Shareholders' Equity
21 Notes to Consolidated Financial Statements
31 Report of Independent Accountants
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
(in thousands, except for share and per share data)
For the years ended December 31 1997 1996 1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income........................................... $ 25,297 $ 24,337 $ 23,617 $ 20,378 $ 19,495
Interest expense.......................................... 6,929 6,490 7,246 5,077 5,823
---------------------------------------------------------------------
Net interest income....................................... 18,368 17,847 16,371 15,301 13,672
Loan loss provision....................................... 200 350 500 500 500
---------------------------------------------------------------------
Net interest income after loan loss provision............. 18,168 17,497 15,871 14,801 13,172
Other income.............................................. 11,749 10,423 9,197 8,383 9,786
Other expenses............................................ 20,837 18,978 18,325 17,535 17,670
---------------------------------------------------------------------
Income before income taxes and cumulative effect of
accounting change....................................... 9,080 8,942 6,743 5,649 5,288
Applicable income taxes................................... 2,950 2,900 2,100 1,600 1,401
---------------------------------------------------------------------
Income before cumulative effect of accounting change...... 6,130 6,042 4,643 4,049 3,887
Cumulative effect of accounting change.................... -- -- -- -- (175)
---------------------------------------------------------------------
Net income................................................ $ 6,130 $ 6,042 $ 4,643 $ 4,049 $ 3,712
---------------------------------------------------------------------
Per share data*:
Earnings per common share:
Basic................................................. $ 2.79 $ 2.76 $ 2.12 $ 1.85 $ 1.71
Diluted............................................... $ 2.67 $ 2.66 $ 2.08 $ 1.84 $ 1.68
Dividends declared...................................... $ 0.72 $ 0.92 $ 0.50 $ 0.325 $ 0.20
Weighted average shares outstanding..................... 2,196,081 2,192,547 2,188,528 2,183,900 2,176,446
Dilutive potential common shares........................ 101,830 75,849 45,370 13,176 29,234
---------------------------------------------------------------------
Adjusted weighted average shares........................ 2,297,911 2,268,396 2,233,898 2,197,076 2,205,680
<CAPTION>
(in thousands)
At December 31 1997 1996 1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets.............................................. $ 374,210 $ 345,747 $ 354,956 $ 333,180 $ 320,942
Earning assets............................................ 327,942 305,911 314,089 298,385 287,945
Deposits.................................................. 328,806 303,183 317,601 301,337 291,074
Shareholders' equity...................................... 39,349 35,808 31,903 27,146 24,627
<CAPTION>
For the years ended December 31 1997 1996 1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected financial ratios:
Net income to:
Average total assets.................................... 1.74% 1.79% 1.39% 1.26% 1.23%
Average shareholders' equity............................ 16.45 18.16 15.79 15.70 16.37
Average shareholders' equity to average total assets...... 10.60 9.88 8.79 8.06 7.51
Dividends declared per share to net income per basic
common share*........................................... 25.81 33.33 23.58 17.57 11.70
</TABLE>
* Share and per share data have been adjusted to reflect the adoption of
Statement of Financial Accounting Standard No. 128, "Earnings per Share".
1
<PAGE>
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 each of the
three years in the period ended December 31, 1997, as well as the financial
condition of the Corporation as of December 31, 1997 and 1996. The Bryn Mawr
Trust Company (the "Bank") and Tax Counsellors of Bryn Mawr, Inc. ("TCBM") are
wholly-owned subsidiaries of the Corporation. This discussion should be read in
conjunction with the Corporation's consolidated financial statements beginning
on page 17.
SIGNIFICANT ITEMS FOR 1997
- --------------------------
GROWTH OF NON-INTEREST REVENUE STREAMS
A strategic goal of the Corporation is to seek new sources of non-interest
revenue. In July 1997, the Corporation established TCBM to provide tax planning
services to its customer base, thereby increasing its non-interest revenue
streams. The Bank's Trust line of business also expanded it's business base,
growing assets under management by 35%, from $1,229,926,000 at December 31, 1996
to $1,666,472,000 at December 31, 1997.
The Corporation's other non-interest related line of business, BMT Mortgage
Company, a division of the Bank, dedicated to the origination and sale of
residential mortgage loans to the secondary mortgage market, also showed
significant growth in revenue streams for 1997, compared to 1996. BMT Mortgage
Company sold $75,874,000 in residential mortgage loans in 1977, a 37% increase
over $55,276,000 sold in 1996. This increase in loan sale activity, increased
the related net gains and fees earned on these sales by $143,000 or 23% over
similar revenues for 1996.
Exclusive of other real estate owned ("OREO") gains and revenues, the growth in
non-interest revenues resulted in an increase in the percentage of non-interest
revenues earned in 1997, compared to total revenues, to 38% in 1997 from 35% for
1996.
REDUCTION IN NONPERFORMING ASSETS
During the fourth quarter of 1997, the Bank sold its final large commercial
property, held in its OREO portfolio. This transaction was primarily responsible
for reducing the Bank's OREO balance by $1,498,000 or 98% from $1,523,000 at
December 31, 1996 to $25,000 at December 31, 1997. Nonperforming loans increased
29% from $907,000 at December 31, 1996 to $1,169,000 at December 31, 1997. Total
nonperforming assets decreased $1,236,000 or 51%, from $2,430,000 at December
31, 1996 to $1,194,000 at December 31, 1997.
DIVIDEND INCREASE
Based on consecutive years of record earnings, the Corporation increased its
quarterly dividend payment for 1997 by 20%, from $0.15 per share to $0.18 per
share. During the first quarter of 1996, the Corporation's Board of Directors
approved a special onetime dividend of $0.32 per share to return to shareholders
the after-tax gain on the sale of a commercial property which was included in
the Bank's OREO portfolio. The addition of the onetime dividend caused the
Corporation's dividend payout ratio to be 33.33% of basic earnings per share for
1996, compared to 25.81% for 1997. Exclusive of the onetime dividend, the 1996
payout ratio was 21.74%.
RESULTS OF OPERATIONS
- ---------------------
OVERVIEW
The Corporation reported net income of $6,130,000 for the year ended December
31, 1997, a record year for Corporation earnings. During the first quarter of
1996, the Bank sold a commercial property it had acquired in connection with its
workout of a defaulted loan. The Bank recognized a nonrecurring gain on the sale
of this OREO property of $1,073,000 which was in part offset by increases in its
OREO and contingency reserves, totaling $155,000 and the payment of a onetime
bonus of $92,000 to certain Bank officers and employees. Exclusive of the net
gain on the sale of the OREO property, the nonrecurring expenses referred to
above and the income tax effect on the transaction, which produced a net gain of
$545,000 in 1996, adding $0.25 to basic earnings per common share, net income
would have been $5,497,000. Net income for 1997 was 12% ahead of that amount.
Net income for 1996, including the above referenced $545,000, amounted to
$6,042,000.
During 1997, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standard No. 128 -- "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 requires the computation of both basic earnings per share
and diluted earnings per share. Basic earnings per share is computed by dividing
the Corporation's net income (numerator) by the weighted-average number of
common shares outstanding for the period (denominator). Dilutive earnings per
share adds to the weighted-average outstanding number of shares the number of
additional common shares that would have been outstanding if the dilutive common
shares had been issued. The dilutive potential common shares added to the
weighted-average shares outstanding were 101,830 and 75,849 for 1997 and 1996,
respectively. Earnings per common share amounted to $2.79 in 1997, a 1% increase
over $2.76 for 1996. Exclusive of the $0.25 per basic common share, related to
the nonrecurring transactions in the previous paragraph, earnings per common
share increased 11% in 1997
2
<PAGE>
compared to 1996. Earnings per common share, assuming dilution were $2.67 and
$2.66 for 1997 and 1996, respectively.
These record earnings results for 1997 were due primarily to a 30% increase in
Trust revenues over 1996 Trust revenues, a 5% increase in average outstanding
earning assets, increasing net interest income and, with the exception of OREO
related revenues, all non-interest revenue streams increased over their
respective levels for 1996. Net interest income grew $521,000 or 3% over 1996
levels. Exclusive of OREO related revenues, total other income increased by
$2,102,000 or 23% over similar revenues for 1996. Other expenses increased
$1,859,000 or 10% in 1997, compared to 1996.
Due to the large gain on the disposition of OREO in 1996, the return on average
assets and return on average equity decreased in 1997, over those reported for
1996. Return on average assets for the year decreased to 1.74% from 1.79% in
1996, while return on average equity for 1997 was 16.45% compared to 18.16% in
1996. Exclusive of the nonrecurring items referred to above, which increased net
income by $545,000, the return on average assets and the return on average
equity for 1996 would have been 1.63% and 16.52%, respectively.
EARNINGS PERFORMANCE
- --------------------
LINES OF BUSINESS
The Corporation continues to have three significant business lines from which it
derives its earnings. Its core business line is the Banking line of business.
Additional earnings streams are received from its Trust line of business and its
Mortgage Banking line of business -- the origination, servicing and sale of
mortgage loans to the secondary mortgage market.
Following is a segmentation analysis of the results of operations for those
lines of business for 1997 and 1996:
TABLE 1 - LINE OF BUSINESS ANALYSIS
1997
------------------------------------------
MORTGAGE
(DOLLARS IN THOUSANDS) BANKING TRUST BANKING CONSOLIDATED
------------------------------------------
NET INTEREST INCOME AFTER LOAN
LOSS PROVISION............... $17,831 $ -- $ 337 $18,168
OTHER INCOME.................. 2,706 7,698 1,345 11,749
OTHER EXPENSES................ 15,048 4,888 761 20,697
------------------------------------------
OPERATING PROFIT.............. $ 5,489 $2,810 $ 921 $ 9,220
--------------------------
GENERAL CORPORATE EXPENSES.... -- -- -- 140
----------
INCOME BEFORE INCOME TAXES.... -- -- -- $ 9,080
----------
% OF CONSOLIDATED OPERATING
PROFIT....................... 60% 30% 10% 100%
1996
------------------------------------------
Mortgage
(dollars in thousands) Banking Trust Banking Consolidated
------------------------------------------
Net interest income after loan
loss provision............... $17,241 $ -- $ 256 $17,497
Other income.................. 3,249 5,936 1,238 10,423
Other expenses................ 14,346 3,817 715 18,878
------------------------------------------
Operating profit.............. $ 6,144 $2,119 $ 779 $ 9,042
--------------------------
General corporate expenses.... -- -- -- 100
Income before income taxes.... -- -- -- $ 8,942
----------
% of consolidated operating
profit....................... 68% 23% 9% 100%
The tables reflect operating profits of each line of business before income
taxes.
A strong increase in Trust operating profit in 1997, compared to 1996, offset by
a reduction in the banking segment's operating profit, due primarily to the
onetime gain on the sale of OREO in 1996, net of non-recurring expenses, were
primarily responsible for the decrease in the percentage of consolidated profits
for the banking segment in 1997, to 60% from 68% in 1996 and the corresponding
increase in the percentage of the Trust segment's operating profit, from 23% in
1996 to 30% in 1997. The Mortgage Banking segment reported an 18% increase in
operating profit, increasing its share of operating profit from 9% in 1996 to
10% in 1997.
Banking Line of Business
The Bank's prime rate increased once, by 25 basis points during the first
quarter of 1997 and ended the year at 8.5%. The Bank's average outstanding
earning assets of $315,548,000 increased 5% from $301,255,000 for 1996. Average
outstanding loans grew by 3% in 1997. Lower loan demand, caused by a combination
of increased competition for new commercial loan business, unplanned prepayments
of some loans and increased competition from automobile makers for new
automobile loans were primarily responsible for the reduction in the percentage
of loan growth in 1997, compared to the growth in 1996 over 1995 average
outstanding loans. Excess available funding was invested in short term, liquid
federal funds sold. The average outstanding balances of federal funds sold
increased by 264% in 1997 compared to 1996 levels. Average outstanding
investments decreased by 14% for 1997, compared to 1996. Average outstanding
deposits increased 4% in 1997 compared to 1996. The largest increase occurred in
the Bank's higher costing CDs, which grew 21%. The other increase in deposits
occurred in noninterest-bearing demand deposits, which increased 4%. Average
outstanding savings deposits, in a reaction to lower market rates of interest,
decreased 2%. The larger increase in average outstanding higher costing time
deposits led to an increase in interest expense and a decrease in the net
interest margin to 5.59% in 1997 from 5.67% for 1996. However, the 5% growth in
average outstanding earning assets was primarily responsible for a 3% increase
in net interest income in 1997, compared to 1996. An expanded discussion of net
interest income follows under the section entitled "Net Interest Income."
3
<PAGE>
Other income decreased by 17% in 1997 compared to 1996. This was due primarily
to a decrease in gains on the sale of OREO in 1997 compared to 1996, the result
of the disposition of OREO referred to above. Exclusive of OREO gains and OREO
revenues in each period, other income in the Banking line of business increased
11%.
Total other expenses of the Banking line of business increased 5% in 1997
compared to 1996 levels. Overall, the operating profits of the Banking line of
business decreased 11% in 1997 compared to 1996. Exclusive of OREO related gains
and revenues in both periods and the non-recurring expenses incurred in 1996,
operating profits of the banking line of business would have decreased by 2% in
1997, compared to 1996.
Trust Line of Business
The Bank's Trust Division reported a 33% increase in operating profit for 1997
compared to 1996 levels. Total Trust fee income rose 30% in 1997. This was
primarily due to a 35% increase in the market value of assets managed, from
$1,229,926,000 at December 31, 1996, to $1,666,472,000 as of December 31, 1997
and an increase in fees charged for Trust services, implemented during the first
quarter of 1997.
Other expenses of the Trust line of business increased 28% in 1997 over 1996
levels. The primary reasons for this increase in expenses were required staffing
additions during 1997 and an increase in the Trust Division's incentive
compensation, directly related to the Division's overall profitability. The
Trust incentive compensation amounted to $663,000 for 1997, compared to $94,000
for 1996. Exclusive of the cost of the Trust incentive in each period, Trust
Division expenses increased 13% in 1997, compared to 1996.
Mortgage Banking Line of Business
The operating profit of the Bank's Mortgage Banking line of business increased
18% in 1997 compared to 1996. During 1997, mortgage interest rates decreased
enough to make refinancing attractive to borrowers. In 1997, the Mortgage
Banking line of business had a 37% increase in the volume of loans sold in the
secondary mortgage market, partially offset by an 11 basis point decrease in the
yield on sales, compared to 1996 levels and yields. The result was a 23%
increase in loan fees and net gains on sales. This is the reason for the 32%
increase in net interest income for the Mortgage Banking line of business. As of
December 31, 1997, the Bank serviced $234,061,000 in residential mortgage loans
for others, compared to $205,137,000 in loans serviced for others at year-end
1996. Following is a table showing the volume of residential mortgage loans
originated and sold in the secondary mortgage market, the total loan fees and
net gains realized, and the yield on these loan sales:
TABLE 2 - SUMMARY OF LOAN SALE ACTIVITY
(DOLLARS IN THOUSANDS) 1997 1996
--------------------
Volume of loans sold........................... $75,874 $55,276
Loan fees and net gains on sales............... $ 758 $ 615
Yield on sales................................. 1.00% 1.11%
Tax Counsellors of Bryn Mawr, Inc.
In July 1997, the Corporation established a new wholly-owned subsidiary, TCBM,
in order to add professional tax planning to its array of financial products and
services offered to its customers. TCBM employs two CPAs (the "Tax
Professionals"), having significant tax planning and preparation background and
formerly employed by a "Big Six" accounting firm. As a part of the formation of
TCBM, a profit sharing agreement was developed that allows the Tax Professionals
to retain the net revenues generated by existing clients brought to TCBM. For
the 1/2 year of its operation, TCBM did not exceed the revenue goals established
in the profit sharing agreement. Therefore, TCBM neither had a net profit nor a
net loss for the period.
NET INTEREST INCOME
A 4% or $960,000 increase in interest income, partially offset by a 7% or
$439,000 increase in interest expense from year to year resulted in an overall
increase in net interest income of 3% or $521,000. Average earning assets grew
5% in 1997, compared to 1996 levels. Higher yielding average outstanding loan
balances grew by 3%, being partially funded by a 14% decrease in average
outstanding balances of investments. Average outstanding federal funds sold,
absorbed the balance of growth in deposits and increased 264%. Total average
deposits increased 4%. The largest increase occurred in the Bank's higher
costing average outstanding CD balances, up by 21%. This growth in average
outstanding CD balances is the primary reason for the 7% increase in interest
expense for 1997, compared to 1996 levels. Average outstanding
noninterest-bearing demand deposits also increased by 4%. Primarily a result of
continued lower market rates of interest, average outstanding savings deposits
decreased by 2% in 1997, compared to 1996 levels. Due primarily to a 10 basis
point increase in the average effective rate paid on interest bearing
liabilities, from 2.9% to 3.0%, the Bank's net interest margin, defined as net
interest income exclusive of loan fees as a percentage of average earning
assets, decreased from 5.67% for 1996 to 5.59% for 1997.
4
<PAGE>
The following table shows an analysis of the composition of net interest income
for each of the last three years. Interest income on loans includes fees on
loans of $742,000, $789,000 and $798,000 in 1997, 1996 and 1995 respectively.
The average loan balances include nonaccrual loans. All average balances are
calculated on a daily basis. Yields on investment securities are not calculated
on a tax-equivalent basis.
TABLE 3 - ANALYSES OF INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------------------------
AVERAGE Average Average
INTEREST RATES Interest Rates Interest Rates
AVERAGE INCOME/ EARNED/ Average Income/ Earned/ Average Income/ Earned/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE PAID Balance Expense Paid Balance Expense Paid
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks........ $ 23,329 $ -- --% $ 21,942 $ -- --% $ 19,275 $ -- --%
Interest-bearing deposits with
other banks*................. 176 8 4.5 94 4 4.3 108 8 7.4
Federal funds sold*............ 16,964 935 5.5 4,660 257 5.5 13,658 813 6.0
Investment securities available
for sale:
Taxable*..................... 32,693 1,988 6.1 36,680 2,157 5.9 48,502 2,562 5.3
Tax-exempt*.................. 5,868 283 4.8 8,142 406 5.0 11,905 607 5.1
------------------- ----------------- -----------------
Total investment
securities................. 38,561 2,271 5.9 44,822 2,563 5.7 60,407 3,169 5.2
------------------- ----------------- -----------------
Loans*......................... 259,847 22,083 8.5 251,679 21,513 8.5 225,656 19,627 8.7
Less allowance for loan
losses....................... (4,247) -- -- (4,017) -- -- (3,897) -- --
------------------- ----------------- -----------------
Net loans.................... 255,600 22,083 8.6 247,662 21,513 8.7 221,759 19,627 8.9
Other assets................... 16,807 -- -- 17,539 -- -- 19,184 -- --
------------------- ----------------- -----------------
Total assets................. $ 351,437 $25,297 -- $336,719 $24,337 -- $334,391 $23,617 --
------------------- ----------------- -----------------
LIABILITIES:
Demand deposits,
noninterest-bearing.......... $ 76,076 $ -- --% $ 73,034 $ -- --% $ 68,654 $ -- --%
Savings deposits............... 158,752 3,058 1.9 161,577 3,187 2.0 161,744 3,487 2.2
Time deposits.................. 73,792 3,871 5.2 60,930 3,203 5.3 68,328 3,754 5.5
Federal funds purchased........ 5 -- -- 1,824 100 5.5 89 5 5.6
Other liabilities.............. 5,550 -- -- 6,085 -- -- 6,175 -- --
------------------- ----------------- -----------------
Total liabilities............ 314,175 6,929 -- 303,450 6,490 -- 304,990 7,246 --
Shareholders' equity........... 37,262 -- -- 33,269 -- -- 29,401 -- --
------------------- ----------------- -----------------
Total liabilities and
shareholders' equity....... $ 351,437 $ 6,929 -- $336,719 $6,490 -- $334,391 $7,246 --
------------------- ----------------- -----------------
Total earning assets*.......... $ 315,548 -- -- $301,255 -- -- $299,829 -- --
Interest income to earning
assets....................... -- -- 8.0 -- -- 8.1 -- -- 7.9
Interest expense to earning
assets....................... -- -- 2.2 -- -- 2.2 -- -- 2.4
--- --- ---
Net yield on interest-earning
assets....................... -- -- 5.8 -- -- 5.9 -- -- 5.5
Average effective rate paid on
interest-bearing
liabilities.................. -- -- 3.0 -- -- 2.9 -- -- 3.1
</TABLE>
*Indicates earning assets.
5
<PAGE>
The following table shows the effect of changes in volumes and rates on interest
income and interest expense. Variances which were not specifically attributable
to volume or rate were allocated proportionately between volume and rate.
Interest income on loans included (decreases) increases in fees on loans of
($47,000) in 1997, ($9,000) in 1996, and $234,000 in 1995.
TABLE 4 - RATE/VOLUME ANALYSES
(IN THOUSANDS) 1997 VS. 1996 1996 VS. 1995
----------------------------------------------------
INCREASE/(DECREASE) VOLUME RATE TOTAL VOLUME RATE TOTAL
----------------------------------------------------
Interest Income:
Interest-bearing
deposits with other
banks................. $ 4 $ -- $ 4 $ (1) $ (3) $ (4)
Federal funds sold...... 678 -- 678 (494) (62) (556)
Investment securities
available for sale:
Taxable................ (241) 72 (169) (674) 269 (405)
Tax-exempt............. (108) (15) (123) (189) (12) (201)
Loans................... 830 (260)* 570 2,325 (439)* 1,886
----------------------------------------------------
Total interest income... 1,163 (203) 960 967 (247) 720
----------------------------------------------------
Interest expense:
Savings deposits....... (33) (96) (129) (3) (297) (300)
Time deposits.......... 725 (57) 668 (412) (139) (551)
Federal funds
purchased . ......... (100) -- (100) 95 -- 95
----------------------------------------------------
Total interest
expense.............. 592 (153) 439 (320) (436) (756)
----------------------------------------------------
Interest
differential......... $ 571 $ (50) $ 521 $1,287 $ 189 $1,476
----------------------------------------------------
* Included in the loan rate variance was a decrease in interest income related
to nonperforming loans of $85,000 in 1996 and an increase of $69,000 in 1995.
The variances due to rate include the effect of nonaccrual loans because no
interest is earned on such loans.
The 4% growth in interest income for 1997 was attributable to a 5% increase in
average earning assets from $301,255,000 for 1996 to $315,548,000 for 1997. The
yield on average outstanding earning assets decreased 10 basis points for 1997,
to 8.0% from 8.1% for 1996. The average yield on loans and federal funds sold
remained level in 1997, when compared to 1996, at 8.5% and 5.5%, respectively.
The yield on the investment portfolio increased by 20 basis points from 5.7% in
1996 to 5.9% in 1997. This is due to the maturity of older, lower yielding
investments in the portfolio. The growth in interest income attributable to
volume was the result of a 3% increase in average outstanding loans and
significant growth in average outstanding federal funds sold, offset in part by
lower volumes of average outstanding investments. Partially offsetting this
increase in the volume variance was a reduction in interest income related to
the rate variance. The mixture of both variances is attributable to the 4%
increase in interest income in 1997 over 1996 levels.
As of December 31, 1997, outstanding loans increased 4%. The most significant
loan growth came in permanent mortgage loans, which includes residential
mortgage loans, commercial mortgage loans and home equity loans. Commercial
mortgage loans grew by 25%, fixed rate home equity loans by 1%, while
residential mortgage loan balances decreased by 5%, primarily due to increased
loan sale activity in the Bank's Mortgage Banking line of business. Construction
lending outstanding balances increased 79%, as an additional $6,008,000 in
outstanding balances were added to this portfolio. Commercial and industrial
loans were up only 1% over December 31, 1996 levels, reflecting increased
competition for new commercial business in the Bank's market area. A 6% decrease
in outstanding consumer loans is due primarily to a 3% decrease in short-term
indirect automobile loan balances at year-end 1997 compared to 1996. Increased
competition from automobile manufacturers' financing facilities and incentives
was the primary reason for this decrease.
Average deposits increased $13,079,000 or 4% during 1997. During the first
quarter of 1997, the remainder of the Premier CDs, first issued during the first
quarter of 1995 at highly competitive rates of interest, matured. In an effort
to retain some of these CD balances, during the first quarter of 1997, the Bank
offered a nine month CD at a premium rate of interest. This CD promotion was
primarily responsible for the Bank's average CD balances increasing by
$12,862,000 or 21% compared to similar balances for 1996. As interest rates paid
on the Bank's savings deposits, including market rate, NOW and savings accounts,
remained relatively unchanged during 1997, some depositors sought alternative
investment opportunities. Average savings deposits, including market rate, NOW
and savings accounts, decreased by $2,825,000 or 2% in 1997, compared to similar
1996 average balances. Average outstanding noninterest-bearing demand deposits
grew by $3,042,000 or 4%. The growth of average outstanding deposits, primarily
higher costing CDs, was primarily responsible for the 7% increase in interest
expense for 1997. The cost of funds for the Bank averaged 2.2% for both 1997 and
1996.
LOAN LOSS PROVISION
The Bank provided a loan loss provision of $200,000 for 1997, compared to
$350,000 for 1996. The allowance for possible loan losses was $4,074,000 and
$4,182,000 as of December 31, 1997 and 1996, respectively. Due to the low level
of delinquencies during 1997, amounting to 0.65% of outstanding loans as of
December 31, 1997, and the level of the loan loss reserve, management deemed it
appropriate to lower the provision for loan losses during 1997. The ratio of the
loan loss reserve to nonperforming loans was 349% and 461% as of December 31,
1997 and 1996, respectively. Nonperforming loans amounted to $1,169,000 at
December 31, 1997, a 29% increase from $907,000 at December 31, 1996. The
allowance for possible loan losses, as a percentage of outstanding loans, was
1.52% as of December 31, 1997, compared to 1.61% as of December 31,
6
<PAGE>
1996. Bank management determined that the 1997 loan loss provision was
sufficient to maintain an adequate level of the allowance for possible loan
losses during 1997.
A summary of the changes in the allowance for possible loan losses and a
breakdown of loan loss experience by major loan category for each of the past
five years follows:
TABLE 5 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
DECEMBER 31
-------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993
-------------------------------------------
Allowance for possible
loan losses:
Balance, January 1...... $4,182 $3,652 $3,618 $3,601 $3,848
Charge-offs:
Commercial and
industrial........... (196) (84) (527) -- (462)
Real estate--
construction......... -- -- -- (229) (37)
Real estate--
mortgage............. -- (4) (8) (69) (11)
Consumer............... (237) (180) (234) (365) (388)
-------------------------------------------
Total charge-offs...... (433) (268) (769) (663) (898)
-------------------------------------------
Recoveries:
Commercial and
industrial........... 102 404 236 115 94
Real estate--
construction......... -- -- -- -- --
Real estate--
mortgage............. -- 8 13 20 --
Consumer............... 23 36 54 45 57
-------------------------------------------
Total recoveries....... 125 448 303 180 151
-------------------------------------------
Net (charge-offs)/
recoveries........... (308) 180 (466) (483) (747)
Provision for loan
losses................ 200 350 500 500 500
-------------------------------------------
Balance, December 31.... $4,074 $4,182 $3,652 $3,618 $3,601
-------------------------------------------
Net (charge-offs)/
recoveries to average
loans................. (0.1)% 0.1% (0.2)% (0.2)% (0.4)%
The table below allocates the balance of the allowance for possible loan losses
by loan category and the corresponding percentage of loans to total loans for
each loan category for the last five years:
TABLE 6 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
December 31 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------
% LOANS % LOANS % LOANS % LOANS % LOANS
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
(DOLLARS IN THOUSANDS) LOANS LOANS LOANS LOANS LOANS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial and industrial............... $ 316 28.1% $ 483 28.8% $1,295 28.7% $1,289 23.9% $1,144 26.0%
Real estate--construction............... 1,111 5.1 751 2.9 648 3.8 273 2.1 411 4.9
Real estate--mortgage................... 184 38.2 289 36.9 259 36.4 332 40.4 297 41.0
Consumer................................ 465 28.6 609 31.4 619 31.1 680 33.6 552 28.1
Unallocated............................. 1,998 -- 2,050 -- 831 -- 1,044 -- 1,197 --
-----------------------------------------------------------------------------------------
Total................................. $4,074 100.0% $4,182 100.0% $3,652 100.0% $3,618 100.0% $3,601 100.0%
-----------------------------------------------------------------------------------------
</TABLE>
The loan loss reserve allocation reflects a reserve based on specific loan loss
reserve allocations on loans reviewed individually as well as an average
historical loan write-off percentage for loans in each specific loan category
not individually reviewed and is also increased by an additional percentage to
reflect current market conditions. As a part of the internal loan review
process, loans considered impaired under SFAS No. 114 are individually reviewed
and, when deemed appropriate, a specific portion of the loan loss reserve is
allocated to the respective impaired loans.
Refer to page 13 for further discussion of the Corporation's loan review
process.
OTHER INCOME
The following table details other income for the years ended December 31, 1997
and 1996, and the percent change from year to year:
TABLE 7 - OTHER INCOME
(DOLLARS IN THOUSANDS) 1997 1996 % Change
----------------------------
Fees for Trust services............. $ 7,698 $ 5,936 30%
Service charges on deposit
accounts.......................... 1,124 1,081 4
Other fees and service charges...... 1,378 1,280 8
Net gain on sale of loans........... 509 398 28
Gain on sale of other real estate
owned............................. 379 1,081 (65)
OREO revenues....................... -- 74 N/A
Other operating income.............. 661 573 15
----------------------------
Total other income.................. $11,749 $10,423 13%
----------------------------
In addition to net interest income, the Bank's three operating segments and TCBM
generate various fee-based income, including Trust income, service charges on
deposit accounts, as well as loan servicing income and gains/losses on loan
sales.
As discussed in the "Lines of Business" section on pages 3 and 4, the increase
in other income in 1997 from 1996 levels was primarily a result of an increase
in fees for Trust services, partially offset by lower gains on the sale of OREO.
Trust income grew 30% from year to year, due primarily to a first quarter 1997
increase in the fee schedule of Trust services provided to Trust clients, the
acquisition of new Trust accounts during 1997 and an increase in the market
value of Trust assets under management, by 35%, to $1,666,472,000 at year-end
1997, up from $1,229,926,000 as of December 31, 1996.
7
<PAGE>
As discussed in the "Mortgage Banking Line of Business" section, the 28%
increase in gains on the sale of loans was directly attributable to an 37%
increase in the volume of loans sold in 1997 compared to 1996, partially offset
by an 11 basis point decrease in the yield realized on the sale of loans in 1997
compared to 1996.
During the first quarter of 1996, the Bank sold a commercial OREO property,
generating a gain of $1,073,000 on the transaction. This is the primary reason
for the 65% decrease in the gain on sale of OREO, from $1,081,000 in 1996 to
$379,000 in 1997.
The sale of the OREO property in 1996 eliminated the OREO revenue stream in
March 1996. No OREO revenues were earned in 1997, compared to one quarter's
revenue being earned in 1996.
Other operating income increased 15% in 1997 from 1996 levels, primarily due to
fee income of $134,000 earned by TCBM from July 1997 to December 1997. No such
fees were earned in 1996. Partially offsetting these fees was a decrease of
$55,000 representing a non-recurring fee for brokering a loan transaction
between two other financial institutions, earned in 1996.
OTHER EXPENSES
The following table details other expenses for the years ended December 31, 1997
and 1996, and the percent change from year to year:
TABLE 8 - OTHER EXPENSES
1997 1996 % Change
-----------------------------
Salaries-regular.................... $ 8,604 $ 7,594 13%
Salaries-other...................... 1,655 1,045 58
Employee benefits................... 1,791 1,585 13
Occupancy expense................... 1,365 1,537 (11)
Furniture, fixtures and equipment... 1,565 1,246 26
Advertising......................... 1,069 991 8
Computer processing................. 584 836 (30)
Stationery and supplies............. 322 355 (9)
Professional fees................... 822 677 21
Insurance........................... 188 159 18
Merchant credit card processing..... 390 376 4
Net cost of operation of other real
estate owned....................... 9 97 (91)
Other operating expenses............ 2,473 2,480 --
-----------------------------
Total other expenses................ $ 20,837 $18,978 10%
-----------------------------
Other expenses increased for the year ended December 31, 1997, by 10% compared
to 1996. Regular salaries, consisting of regular, part time and overtime salary
expense and the largest component of other expenses, rose 13%, due primarily to
merit increases and staffing additions, including the establishment of TCBM in
July 1997. As of December 31, 1997, the Corporation's consolidated full-time
equivalent staffing level was 220.0 compared to 205.5 as of December 31, 1996.
Other salaries, which primarily consist of incentive compensation, increased 58%
from 1996 to 1997. The $610,000 increase was primarily related to incentive
based compensation, tied to the overall profitability of the Corporation and
specific lines of business. Trust incentive compensation related to the Trust
division's profitability increased $569,000 or 605% in 1997. The Bank's overall
incentive salaries increased $34,000 or 7% and the mortgage banking incentive
pool grew by $39,000 or 25%, due to increased profitability in the mortgage
banking line of business. A Trust incentive related to acquisition of new Trust
business increased by $96,000 or 81%, as Trust new business referrals grew
during 1997. Offsetting these increases was a decrease of $92,000 for a onetime
bonus, related to the nonrecurring gain on the sale of the OREO property,
incurred in 1996. Commissions paid to mortgage originators decreased $36,000 or
54% in 1997. The Mortgage Banking line of business relied more heavily on
mortgage originations through its own employees or from refinances of existing
mortgages, not specifically requiring the services of a mortgage originator.
These changes from 1996 accounted for all of the $610,000 increase in other
salary expense from 1996 to 1997.
Employee benefit costs increased $206,000 or 13% in 1997 over 1996 levels, due
to increases of $160,000 in actuarially computed post-retirement benefits costs
for 1997 compared to 1996, social security expenses increasing $73,000, the cost
of medical and life insurance increasing $87,000 and the cost of the
Corporation's Supplemental Employee Retirement Plan increasing $22,000. These
increases were partially offset by a $150,000 reduction in the cost of the
Corporation's pension expense.
The primary reason for the decrease in occupancy expenses, down $172,000 or 11%
from 1996 to 1997, was a reduction in interest expense on mortgage debt of the
Corporation. The Corporation prepaid a mortgage loan on one of its properties,
thereby reducing interest on mortgage loans by $126,000 from 1996 to 1997. The
Corporation also did not incur the expense of snow removal in 1997, associated
with costs incurred for the "Blizzard of 1996".
Furniture, fixtures and equipment expense increased by $319,000 of 26% in 1997,
compared to 1996. Depreciation expense increased $46,000, reflecting the effect
of capital improvements made during 1997. The amortization of EDP conversion
costs, capitalized during the first quarter of 1996, increased by $58,000,
reflecting a full year's amortization for 1997, compared to a partial year's
amortization in 1996. The cost of maintenance agreements on an expanded volume
of computer related and other equipment increased by $133,000 in 1997 and the
cost of non-capitalized small equipment expense rose by $42,000.
Advertising increased $78,000 or 8%, reflecting the continued commitment to both
print and electronic media as a means of
8
<PAGE>
increasing the public's awareness of the Bank's array of products and services.
Computer processing expense decreased $252,000 or 30% in 1997, compared to 1996.
During the first quarter of 1996, the Corporation converted to an in-house data
processing system. The expenses for 1997 reflect a full year's benefit of lower
computer processing fees, compared to a partial year's benefit in 1996.
Stationery and supplies decreased $33,000 or 9% in 1997, compared to 1996, due
primarily to additional costs, in 1996, associated with the in-house data
processing conversion.
The cost of professional fees increased by $145,000 or 21% in 1997, compared to
1996. The largest increase came in legal fees, up $117,000 or 32%. During 1997,
the Corporation incurred $97,000 in legal fees, of a non-recurring nature, in
connection with the workout of two problem loans.
Insurance expense increased by $29,000 or 18%. Insurance expense is composed of
the premiums paid to The Federal Deposit Insurance Corporation (the "FDIC") for
deposit insurance, as well as the cost of the Corporation's business insurance
coverage. During 1996, the FDIC announced that while the bank insurance fund
("BIF") was sufficiently funded to provide necessary coverage for insured bank
deposits, there was a deficiency in funding to pay interest on the savings
associations' insurance fund ("SAIF") debt. Therefore, the FDIC, starting in
1997, charged commercial banks a premium to assist in the coverage of the
deficiency. In 1996, the Bank paid $2,000 in deposit insurance premiums,
compared to $36,000 in 1997, a $34,000 increase over 1996 premiums. The Bank's
business insurance premiums decreased $5,000 or 3% during 1997, compared to
similar premiums in 1996.
Other operating expenses increased $7,000 from 1996 to 1997. Included in 1996's
expense was $155,000 of nonrecurring expenses related to the sale of the OREO
property, discussed previously. Exclusive of these nonrecurring expenses, other
operating expense increased $162,000 or 6% over 1996's similar expenses.
INCOME TAXES
The Corporation's provision for federal income taxes is based on the statutory
tax rate of 34%. Federal income taxes for 1997 were $2,950,000, compared to
$2,900,000 for 1996. This represents an effective tax rate of 32.5% and 32.4%
for 1997 and 1996, respectively. Income taxes for financial reporting purposes
differ from the amount computed by applying the statutory rate to income before
taxes, due primarily to tax-exempt income from certain loans and investment
securities. See Note 8 to the consolidated financial statements.
FINANCIAL CONDITION
- -------------------
INVESTMENT SECURITIES
Management has elected to classify 100% of the investment portfolio as available
for sale. Therefore, the investment portfolio was carried at its estimated
market value of $40,666,000 and $34,747,000 as of December 31, 1997 and 1996,
respectively. The amortized cost of the portfolio as of December 31, 1997, was
$40,573,000, resulting in net unrealized gains of $93,000. The amortized cost of
the portfolio at December 31, 1996, was $34,748,000, resulting in net unrealized
losses of $1,000.
The maturity distribution and weighted average yields on a fully tax-equivalent
basis of investment securities at December 31, 1997, are as follows:
TABLE 9 - INVESTMENT PORTFOLIO
MATURING MATURING
FROM FROM
MATURING 1999 2003 MATURING
DURING THROUGH THROUGH AFTER
(DOLLARS IN THOUSANDS) 1998 2002 2007 2007 TOTAL
---------------------------------------------------
Obligations of the
U.S. Government and
agencies:
Book value.......... $8,018 $27,054 $ -- $ -- $35,072
Weighted average
yield............. 5.7% 6.2% -- -- 6.2%
State and political
subdivisions:
Book value.......... 979 3,329 -- -- 4,308
Weighted average
yield............. 7.3% 7.1% -- -- 7.1%
Other investment
securities:
Book value.......... -- -- -- 1,286 1,286
Weighted average
yield............. -- -- -- 6.3% 6.3%
---------------------------------------------------
Total book value..... $8,997 $30,383 -- $1,286 $40,666
Weighted average
yield............... 5.9% 6.3% -- 6.3% 6.2%
In addition to $15,200,000 in maturities, during 1997, $8,955,000 in municipal
bonds were called and $27,000 of Federal Home Loan Bank of Pittsburgh (the
"FHLB") stock was sold back to the FHLB with no gain or loss on the transaction.
With a decline in overall loan demand in 1997, Bank management purchased
$30,013,000 in U.S. Government or U.S. Government Agency securities. Those
transactions were primarily responsible for the $5,919,000 or 17% increase in
the investment portfolio from December 31, 1996, to December 31, 1997. At
December 31, 1997, approximately 86% of the investment portfolio consisted of
fixed rate U.S. Government and U.S. Government Agency securities. The
Corporation does not own any derivative investments and does not plan to
purchase any of those investments in the foreseeable future.
9
<PAGE>
LOANS
For financial reporting purposes, both fixed and floating rate home equity
loans, collateralized by mortgages, are included in other permanent mortgage
loans. Floating rate personal CreditLine loans are included in consumer loans.
A breakdown of the loan portfolio by major categories at December 31 for each of
the last five years is as follows:
TABLE 10 - LOAN PORTFOLIO
DECEMBER 31
-----------------------------------------------------
(IN THOUSANDS) 1997 1996 1995 1994 1993
-----------------------------------------------------
Real estate loans:
Permanent mortgage
loans............. $ 102,474 $ 95,588 $ 85,752 $ 92,395 $ 78,553
Construction
loans............. 13,647 7,639 8,905 4,884 9,482
Commercial and
industrial loans.... 75,474 74,688 67,507 54,631 49,800
Consumer loans....... 76,963 81,512 73,189 76,828 53,882
-----------------------------------------------------
Total............. $ 268,558 $259,427 $235,353 $228,738 $191,717
-----------------------------------------------------
The maturity distribution of the loan portfolio, excluding loans secured by
one-family residential property and consumer loans, at December 31, 1997, is
shown below.
MATURING
FROM
MATURING 1999 MATURING
DURING THROUGH AFTER
(IN THOUSANDS) 1998 2002 2002 TOTAL
-----------------------------------------
Commercial, financial, and
agricultural................. $46,193 $20,542 $ 8,739 $ 75,474
Real estate--construction..... 8,250 5,397 -- 13,647
Real estate--other............ 1,898 8,274 28,802 38,974
-----------------------------------------
Total...................... $56,341 $34,213 $37,541 $128,095
-----------------------------------------
Interest sensitivity on the
above loans:
Loans with predetermined
rates...................... $ 8,161 $22,623 $ 6,438 $ 37,222
Loans with adjustable or
floating rates............. 48,180 11,590 31,103 90,873
-----------------------------------------
Total...................... $56,341 $34,213 $37,541 $128,095
-----------------------------------------
There are no scheduled prepayments on the loans included in the maturity
distributions.
TABLE 11 - LOAN PORTFOLIO AND NON-PERFORMING ASSET ANALYSIS
<TABLE>
<CAPTION>
LOAN LOSS
LOAN PORTFOLIO NONPERFORMING ASSETS RESERVE
------------------------------------------------------------------------------------------------
Past Due Past Due Non- Other Total Non- Reserve for
30 to 89 90 Days Total Performing Real Estate Performing Loan Loss
(IN THOUSANDS) Current Days or More Loans Loans* Owned** Assets Allocation
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
Permanent mortgage loans:
Residential................... $ 15,619 $ 2 $ -- $ 15,621 $ 35 $-- $ 35 $ --
Commercial.................... 38,286 -- 688 38,974 688 25 713 --
Home equity................... 47,687 120 72 47,879 72 -- 72 --
------------------------------------------------------------------------------------------------
Total permanent mortgage
loans..................... 101,592 122 760 102,474 795 25 820 184
Construction mortgage loans:
Residential................... 11,400 -- -- 11,400 -- -- -- --
Commercial.................... 2,247 -- -- 2,247 -- -- -- --
------------------------------------------------------------------------------------------------
Total construction mortgage
loans..................... 13,647 -- -- 13,647 -- -- -- 1,111
------------------------------------------------------------------------------------------------
Total real estate loans..... 115,239 122 760 116,121 795 25 820 1,295
COMMERCIAL AND INDUSTRIAL LOANS... 75,006 121 347 75,474 347 -- 347 --
------------------------------------------------------------------------------------------------
Total commercial and
industrial loans.......... 75,006 121 347 75,474 347 -- 347 316
------------------------------------------------------------------------------------------------
CONSUMER LOANS:
Direct.......................... 9,079 32 6 9,117 6 -- 6 --
Indirect........................ 65,557 274 17 65,848 17 -- 17 --
CreditLine...................... 1,971 23 4 1,998 4 -- 4 --
------------------------------------------------------------------------------------------------
Total consumer loans........ 76,607 329 27 76,963 27 -- 27 465
Unallocated reserve for loan
loss............................ -- -- -- -- -- -- -- 1,998
------------------------------------------------------------------------------------------------
Total........................... $266,852 $572 $1,134 $268,558 $1,169 $25 $1,194 $4,074
------------------------------------------------------------------------------------------------
</TABLE>
* Nonperforming loans are loans on which scheduled principal and/or interest is
past due 90 days or more and loans less than 90 days past due which are
deemed to be problem loans by management. Total nonperforming loans of
$1,169,000 includes the $1,134,000 in loans past due 90 days or more plus
$35,000 in loans less than 90 days delinquent, on which certain borrowers
have paid interest regularly.
** Other real estate owned was written down to current market values at the time
of reclassification to this category.
These amounts are not included in the total loan amounts.
10
<PAGE>
The Bank's lending function is its principal income generating activity, and it
is the Bank's policy to continue to serve the credit needs of its market area.
Total loans at December 31, 1997, increased 4% to $268,558,000 from $259,427,000
as of December 31, 1996.
The largest increase was in permanent mortgage loans, which consist of
commercial and residential mortgages as well as home equity loans. Outstanding
permanent mortgage loan balances increased by 7% or $6,886,000 during 1997, from
$95,588,000 at December 31, 1996, to $102,474,000 at December 31, 1997. This
growth was due primarily to a $7,916,000 or 25% increase in commercial mortgage
loans. Home equity loans decreased by $248,000 or 4%, and residential mortgage
loans decreased by $782,000 or 5%, primarily due to increased sales of
residential mortgage loans to the secondary mortgage market.
Consumer loans, consisting of loans to individuals for household, automobile,
family, and other consumer needs, as well as purchased indirect automobile paper
from automobile dealers in the Bank's market area, decreased $4,549,000 or 6%,
from $81,512,000 at December 31, 1996, to $76,963,000 at December 31, 1997. The
largest decrease occurred in the outstanding balances of the indirect automobile
paper. Outstanding indirect automobile paper decreased $2,327,000 or 3% from
$67,396,000 at December 31, 1996, to $65,069,000 at December 31, 1997.
Competition from automobile manufacturers' credit facilities and lower costing
financing from home equity loans are the primary reasons for this decrease.
The Bank's commercial and industrial lending grew $786,000 or 1%, from
$74,688,000 at December 31, 1996 to $75,474,000 at December 31, 1997. Increased
competition in the Bank's commercial lending market area and prepayments of
loans during 1997 are the primary reasons for the 1% growth of this portfolio.
In recent years, the Bank had made a decision to reduce its construction loan
balances, to lower its exposure to higher risk loans. As of December 31, 1995,
1996 and 1997, the construction lending portfolio had no nonperforming loans nor
any loans delinquent 30 days or more. The Bank has chosen to selectively return
to the construction lending market. As of December 31, 1997, the construction
loan portfolio increased by $6,008,000 or 79%, from $7,639,000 at December 31,
1996, to $13,647,000 at December 31, 1997.
DEPOSITS
The Bank attracts deposits from within its primary market area by offering
various deposit instruments, including savings accounts, NOW accounts, market
rate accounts, and certificates of deposit.
Total deposits increased 8% to $328,806,000 at December 31, 1997, from
$303,183,000 at year end 1996. A more meaningful measure of deposit change is
average daily balances. As illustrated in Table 12, average daily deposit
balances increased 4%. In an effort to increase its deposit base in 1995, the
Bank offered one and two year Premier CDs, at interest rates of 6.50% and 7.00%,
respectively. During the first quarter of 1997, the remaining two year Premier
CDs matured. In an effort to retain some of the maturing CDs, the Bank offered a
nine month CD at a premium rate. This is the primary reason for the 21% increase
in average outstanding CD balances from 1996 to 1997. In a reaction to continued
low market rates of interest on savings related balances, average daily
outstanding balances of regular savings and market rate accounts both decreased
by 7%. Partially offsetting these decreases were increases in the average daily
balances of NOW accounts and noninterest-bearing demand deposits, which grew 5%
and 4%, respectively, over similar balances for 1996.
During 1997, with strong growth in CDs and a decline in loan demand, the Bank
only occasionally had to purchase federal funds. The average daily outstanding
balance of federal funds purchased was $5,000 for 1997, compared to $1,824,000
in 1996. The Bank maintains federal funds credit lines with various
correspondent banks as well as the ability to borrow from the FHLB.
The following table presents the average balances of deposits and the percentage
change for the years indicated:
TABLE 12 - AVERAGE DAILY BALANCES OF DEPOSITS
% Change % Change
1997 vs. 1996 vs.
(IN THOUSANDS) 1997 1996 1996 1995 1995
-----------------------------------------------------
Demand deposits,
non-interest-
bearing............ $ 76,076 $ 73,034 4.2 $ 68,654 6.4
-----------------------------------------------------
Market rate
accounts........... 45,903 49,451 (7.2) 50,720 (2.5)
NOW accounts......... 73,958 70,549 4.8 65,999 6.9
Regular savings...... 38,891 41,577 (6.5) 45,025 (7.7)
-----------------------------------------------------
158,752 161,577 (1.7) 161,744 (0.1)
-----------------------------------------------------
Time deposits........ 73,792 60,930 21.1 68,328 (10.8)
-----------------------------------------------------
Total............... $ 308,620 $295,541 4.4 $298,726 (1.1)
-----------------------------------------------------
11
<PAGE>
The following table shows the maturity of certificates of deposit of $100,000 or
greater as of December 31, 1997:
TABLE 13 - MATURITY OF CERTIFICATES OF DEPOSITS OF $100,000 OR GREATER
(in thousands)
Three months or less............. $11,332
Three to six months.............. 985
Six to twelve months............. 1,602
Greater than twelve months....... 305
-------
Total........................... $14,224
=======
CAPITAL ADEQUACY
At December 31, 1997, total shareholders' equity of the Corporation was
$39,349,000, a $3,541,000 or 10% increase over $35,808,000 at December 31, 1996.
In addition to earnings and dividends for the year, the impact of SFAS No. 115
resulted in an increase in shareholders' equity in 1997. As of December 31,
1997, shareholders' equity included unrealized gains on investment securities,
net of deferred taxes, of $62,000 compared to unrealized losses on investment
securities, net of taxes, of $1,000 at December 31, 1996. This change accounted
for a $63,000 increase in total shareholders' equity from December 31, 1996, to
year-end 1997.
The Corporation and the Bank are required to meet certain regulatory capital
adequacy guidelines. Under these guidelines, risk-based capital ratios measure
capital as a percentage of risk-adjusted assets. Risk-adjusted assets are
determined by assigning various weights to all assets and off-balance sheet
arrangements, such as letters of credit and loan commitments, based on the
associated risk.
The Bank's risk-based capital ratios at December 31, 1997 and 1996, are listed
below. These ratios are all in excess of the minimum required capital ratios,
also listed below.
TABLE 14 - RISK-BASED CAPITAL RATIOS
1997 1996
-----------------------------------
Minimum Minimum
Actual Required Actual Required
-----------------------------------
Tier I capital ratio...... 12.21% 4.00% 12.27% 4.00%
Total capital ratio....... 13.47 8.00 13.53 8.00
The FDIC has created a statutory framework for capital requirements that
established five categories of capital strength, ranging from a high of
"well-capitalized" to a low of "critically under capitalized". As of December
31, 1997 and 1996, the Bank exceeded the levels required to meet the definition
of a "well-capitalized" bank. Management anticipates that the Corporation and
the Bank will continue to be in compliance with all capital requirements and
continue to be classified as "well-capitalized."
The Corporation's ability to declare dividends in the future is dependent on
future earnings.
RISK ELEMENTS
Risk elements, as defined by the Securities and Exchange Commission in its
Industry Guide 3, are composed of four specific categories: (1) nonaccrual, past
due, and restructured loans, (2) potential problem loans, loans not included in
the first category, but where information known by Bank management indicates
that the borrower may not be able to comply with present payment terms, (3)
foreign loans outstanding, and (4) loan concentrations. Table 11 presents a
summary, by loan type, of the Bank's nonaccrual and past due loans as of
December 31, 1997. It is the Bank's policy to promptly place nonperforming loans
on nonaccrual status. Bank management knows of no outstanding loans that
presently would meet the criteria for inclusion in the potential problem loan
category, as indicated under specific category (2) referred to above. The Bank
has no foreign loans, and loan concentrations are presented in Table 6. Table 6
presents the percentage of outstanding loans, by loan type, compared to total
loans outstanding as of December 31, 1997.
ASSET QUALITY
The Bank is committed to maintaining and developing quality assets. Loan growth
is generated primarily within the Bank's market area, which includes Montgomery,
Delaware, and Chester Counties, as well as portions of Bucks and Philadelphia
Counties. The development of quality loan growth is controlled through a uniform
lending policy that defines the lending functions and goals, loan approval
process, lending limits, and loan review.
Nonperforming assets amounted to $1,194,000 at December 31, 1997, a 51% decrease
from $2,430,000 at December 31, 1996, because of a decrease in OREO balances.
Nonperforming loans were $1,169,000 at December 31, 1997, a 29% increase from
$907,000 at December 31, 1996. OREO decreased $1,498,000 or 98% to $25,000 at
December 31, 1997, from $1,523,000 at December 31, 1996, primarily because of
the sale of a commercial office building, included in OREO. As of December 31,
1997, there was one property remaining in OREO. The ratio of nonperforming
assets as a percentage of total assets was 0.32% as of December 31, 1997,
compared to 0.70% as of December 31, 1996.
12
<PAGE>
Total nonperforming assets, which include non-accruing and past due loans and
other real estate owned, are presented in the table below for each of the five
years in the period ended December 31, 1997.
TABLE 15 - NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31
------------------------------------------
(in thousands) 1997 1996 1995 1994 1993
------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more not
on nonaccrual status:
Real estate--mortgage............ $ 72 $ 68 $ -- $ 48 $ 139
Consumer......................... 27 51 155 82 59
Loans on which the accrual of
interest has been discontinued:
Commercial and industrial........ 347 76 339 -- 205
Real estate--mortgage............ 723 712 117 371 1,032
Real estate--construction........ -- -- -- 275 708
------------------------------------------
Total nonperforming loans...... 1,169 907 611 776 2,143
Other real estate owned*.......... 25 1,523 3,794 3,475 3,539
------------------------------------------
Total nonperforming assets..... $1,194 $2,430 $4,405 $4,251 $5,682
==========================================
</TABLE>
All loans past due 90 days or more, except consumer loans and home equity
mortgage loans, are placed on nonaccrual status. Such factors as the type and
size of the loan, the quality of the collateral, and historical creditworthiness
of the borrower and/or guarantors are considered by management in assessing the
collectibility of such loans. Interest foregone on nonaccrual status loans was
$298,000 for the year ended December 31, 1997. Interest earned and included in
interest income on these loans prior to their nonperforming status amounted to
$1,000 in 1997.
* Refer to Note 2 to the consolidated financial statements.
The Bank maintains a Loan Review Committee (the "Committee") that periodically
reviews the status of all nonaccrual and impaired loans, loans criticized by
both the Bank's regulators and an independent consultant retained to review both
the loan portfolio as well as the overall adequacy of the loan loss reserve.
During the review of the loan loss reserve, the Committee considers specific
loans on a loan-by-loan basis, pools of similar loans, prior historical
write-off activity, and a supplemental reserve allocation as a measure of
conservatism for any unforeseen loan loss reserve requirements. The sum of these
components is compared to the loan loss reserve balance, and any additions
deemed necessary to the loan loss reserve balance are charged to operating
expenses on a timely basis.
The Corporation is regulated and periodically inspected by The Federal Reserve
Board. During 1995, the Bank became a state member bank of the Federal Reserve
System. The Bank is regulated and periodically examined by the Federal Reserve
Board and the Pennsylvania Department of Banking. There are no recommendations
by the regulators which would have a material effect on the Corporation's
liquidity, capital resources, or results of operations.
ASSET AND LIABILITY MANAGEMENT
Through its Asset/Liability Committee ("ALCO") and the application of Risk
Management Policies and Procedures, the Bank seeks to minimize its exposure to
interest rate risk as well as to maintain sufficient liquidity and capital
compliance.
INTEREST RATE SENSITIVITY
The difference between interest sensitive assets and interest sensitive
deposits, stated in dollars, is referred to as the interest rate sensitivity
gap. A positive gap is created when interest rate sensitive assets exceed
interest rate sensitive deposits. A positive interest rate sensitive gap 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 a negative gap. In practice, however, there may be a lag in
repricing some products in comparison to others. A positive gap in the
short-term, 30 days or less, in a rising interest rate environment should
produce an increase in net interest income. The converse is true of a negative
gap in a rising interest rate environment.
As shown in the following table, the Bank is presently asset interest rate
sensitive in the short-term, 30 days or less category.
TABLE 16 - INTEREST RATE SENSITIVITY ANALYSIS
as of December 31, 1997
<TABLE>
<CAPTION>
REPRICING PERIODS
------------------------------------------------------------------------------
0 TO 30 31 TO 90 91 TO 180 181 TO 365 OVER 1 NON-RATE
(DOLLARS IN THOUSANDS) DAYS DAYS DAYS DAYS YEAR SENSITIVE TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits with other banks..... $ 2,118 $ -- $ -- $ -- $ -- $ -- $ 2,118
Federal funds sold............................. 16,600 -- -- -- -- -- 16,600
Investment securities.......................... 2,001 3,980 8,463 12,503 13,719 -- 40,666
Loans.......................................... 79,473 11,061 13,973 28,742 135,309 (4,074) 264,484
Cash and due from banks........................ -- -- -- -- -- 34,464 34,464
Other assets................................... -- -- -- -- -- 11,687 11,687
------------------------------------------------------------------------------
Total assets................................. $100,192 $15,041 $22,436 $41,245 $149,028 $ 42,077 $370,019
------------------------------------------------------------------------------
Liabilities and shareholders' equity:
Demand, noninterest-bearing.................... $ -- $ -- $ -- $ -- $ -- $ 102,210 $102,210
Savings deposits............................... 62,152 -- -- -- 103,587 -- 165,739
Time deposits.................................. 12,461 9,550 11,912 17,782 10,174 -- 61,879
Other liabilities.............................. -- -- -- -- -- 5,344 5,344
Shareholders' equity........................... -- -- -- -- -- 34,847 34,847
------------------------------------------------------------------------------
Total liabilities and shareholders' equity... $ 74,613 $ 9,550 $11,912 $17,782 $113,761 $ 142,401 $370,019
------------------------------------------------------------------------------
Gap.............................................. $ 25,579 $ 5,491 $10,524 $23,463 $ 35,267 $(100,324) --
Cumulative gap................................... $ 25,579 $31,070 $41,594 $65,057 $100,324 -- --
Cumulative earning assets as a ratio
of interest bearing liabilities................ 134% 137% 143% 157% 144% -- --
</TABLE>
13
<PAGE>
The Bank uses income simulation models to measure its interest rate risk and to
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 year-end 1997, based on an analysis of the results
from the simulation models, the Bank's interest rate risk was within the
acceptable range as established by the Bank's Risk Management Policies and
Procedures.
While future interest rate movements and their effect on Bank revenue cannot be
predicted, there are no trends, events, or uncertainties of which the
Corporation's management is currently aware 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.
LIQUIDITY
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, ALCO reviews the Bank's liquidity
needs, incorporating the ability to borrow from the FHLB and reports these
findings to the Risk Management Committee of the Bank's Board of Directors.
During 1997, cash provided by operations amounted to $5,459,000 and was
primarily from net income of $6,130,000 for 1997. Cash used for investing
activities amounted to $11,893,000. Investment activity used $5,831,000 in cash,
as the balance in the investment portfolio increased by 17% at December 31,
1997, compared to December 31, 1996. Loan activity, including the purchase of
$32,859,000 in indirect automobile paper, used $6,397,000 in funds during 1997.
The sale of OREO properties in 1997 provided $1,879,000 in cash while the
purchase of capital additions used $1,542,000. Offsetting the decrease in funds
from investing activities was an increase in funds from the Corporation's
financing activities, which provided $21,162,000 in net cash, primarily the
result of a $22,622,000 net increase in outstanding noninterest-bearing demand
and savings related deposits. The Corporation used $1,809,000 in repayment of
its mortgage debt. Specifically, the Corporation paid off a mortgage loan during
the first quarter of 1997. The Corporation also used $1,228,000 to repurchase
30,950 shares of treasury stock. The Corporation's cash and cash equivalents
increased from December 31, 1996, to December 31, 1997, by $14,728,000, from
$38,454,000 at December 31, 1996 to $53,182,000 at December 31, 1997.
OTHER
- -----
YEAR 2000
The Corporation began the process of preparing its computer systems and
applications for the year 2000 in November 1996. The process involves modifying
or replacing certain hardware and software as well as communicating with
external service providers to ensure they are taking the appropriate action to
remedy their year 2000 issues. Management expects to have substantially all
essential systems, hardware and software reviewed and upgraded, as 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 costs of replacing or modifying hardware and software.
Purchased hardware and software will be capitalized in accordance with
Corporation policy. Other costs related to the project are being 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.
14
<PAGE>
1996 vs. 1995 Results of Operations
NET INCOME
Net income for the year ended December 31, 1996, was $6,042,000, a 30% increase
over net income of $4,643,000 for the year ended December 31, 1995. During the
first quarter of 1996, the Bank sold a commercial property it had acquired in
connection with its workout of a defaulted loan. The Bank recognized a
non-recurring gain on the sale of $1,073,000 which was in part offset by
increases in its OREO and contingency reserves, totaling $155,000, and the
payment of a onetime bonus of $92,000 to certain Bank officers and employees.
The after-tax effect of these transactions added $545,000 to 1996 net income.
Exclusive of these transactions, 1996 net income would have been $5,497,000, an
18% increase over 1995's net income. Basic earnings per share rose from $2.12 in
1995 to $2.76 in 1996. The addition of $545,000 to net income discussed in the
previous paragraph added $.25 per basic common share to earnings per share.
Earnings per share-assuming dilution was $2.66 for 1996, compared to $2.08 in
1995. In 1996, the Corporation paid dividends of $0.92 per share, including a
onetime special dividend of $0.32 per share to pay the after-tax gain on the
sale of an OREO property to the Corporation's shareholders. Exclusive of this
onetime dividend, dividends per share amounted to $0.60 per share, a 20%
increase over $0.50 per share, declared in 1995.
Return on average assets was 1.79% for 1996 compared to 1.39% in 1995. Return on
average equity was 18.16% in 1996 versus 15.79% in 1995.
NET INTEREST INCOME
While average earning assets remained relatively level from 1995 to 1996, a 3%
rise in interest income was due to a 20 basis point increase in the average
yield on earning assets, from 7.9% in 1995 to 8.1% in 1996 and a change in the
mix of earning assets, increasing higher yielding average loan volumes and
decreasing lower yielding investment and federal fund sold average balances.
Interest expense decreased 10% or $756,000 from 1995 to 1996. The primary reason
for this decrease was an 11% decrease in higher costing CDs and a decrease in
the average effective rate paid on interest bearing liabilities from 3.1% in
1995 to 2.9% in 1996.
Net interest income increased 9%, while the net interest margin increased from
5.21% for 1995 to 5.67% for 1996.
LOAN LOSS PROVISION
The provision for loan losses amounted to $500,000 for 1995 and was decreased to
$350,000 for 1996. The allowance for possible loan losses as a percentage of
nonperforming loans amounted to 461% and 598% as of December 31, 1996 and 1995,
respectively.
OTHER INCOME
Other income increased 13% in 1996 from 1995 levels. Primarily responsible for
this $1,226,000 increase in other income was a $944,000 or 689% increase in
gains on the sale of OREO. Fees for Trust services increased $440,000 or 8%. Net
gains on the sale of mortgage loans decreased $81,000 or 17%, due primarily to a
reduction in the sale of residential mortgage loans to the secondary mortgage
market, from $67,826,000 in 1995 compared to $55,276,000 in 1996. The sale of a
commercial OREO property, during the first quarter of 1996, caused the
elimination of the OREO revenue stream and is the reason for the $279,000 or 79%
decrease in OREO revenues in 1996, compared to 1995. Other operating income
increased $130,000 or 29%, primarily due to a $35,000 increase in revenues from
merchant credit card processing and a $55,000 fee for brokering a loan
transaction between two other financial institutions.
OTHER EXPENSES
Other expenses increased by $653,000 or 4% in 1996 over 1995. Regular salaries
increased $688,000 or 10%, primarily due to merit increases and staffing
additions for Investment Counsellors of Bryn Mawr in the Trust Division.
Salaries, other, primarily incentive based, decreased $67,000 or 6%. Increases
in incentive based compensation, tied to overall profitability of the Bank of
$95,000, as well as a onetime bonus of $92,000 related to the non-recurring gain
on the sale of OREO were offset by a $122,000 and $16,000 reduction in the
respective Trust and Mortgage Banking incentive pools.
Employee benefit costs decreased by $305,000 or 16%, due to reductions in the
actuarially computed pension and post-retirement benefit costs. The expense
reductions, from 1995 to 1996, amounted to $85,000 and $173,000, respectively.
The $369,000 or 42% increase in furniture, fixtures and equipment expense was
primarily due to the additional depreciation on fixed assets and amortization of
EDP conversion costs associated with a first quarter 1996 conversion to an
in-house EDP system. Partially offsetting this increase was a $338,000 or 29%
decrease in computer processing fees.
15
<PAGE>
The $76,000 or 27% increase in stationery and supplies in 1996, compared to
1995, is due primarily to additional costs associated with the in-house EDP
conversion.
Insurance, including the Corporation's business coverage premiums and FDIC
deposit insurance premiums, decreased by $327,000 or 67% in 1996 compared to
1995 levels. During 1995, the FDIC announced that the bank insurance fund was
sufficiently funded to provide necessary coverage for insured bank deposits.
Therefore, for those banks considered "well-capitalized" by FDIC criteria, which
the Bank is considered, the FDIC refunded premiums paid from May through
September 1995 and eliminated any further premiums for the 4th quarter of 1995.
During 1996, the Bank paid a minimum deposit insurance premium of $2,000, which
was a $332,000 decrease in FDIC deposit insurance premiums from 1995 to 1996.
Other operating expenses increased $255,000 or 11% from 1995 to 1996. The larger
increases were in employee tuition expense, up $42,000, related to a Certified
Financial Planning program run by the Bank; the cost of corporate wear for
tellers and customer service representatives, up $31,000; postage expense, up
$30,000 related to the in-house EDP conversion and travel and entertainment, up
$47,000.
INCOME TAXES
The income tax provision for 1996 was $2,900,000, or a 32.4% effective rate,
compared to $2,100,000, or a 31.1% effective rate, for 1995. All of the increase
in income before income taxes from 1995 to 1996 occurred in taxable income,
thereby increasing the effective tax rate for 1996, compared to 1995.
16
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands)
As of December 31 1997 1996
---------------------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks..................................... $ 34,464 $ 26,717
Interest-bearing deposits with other banks.................. 2,118 121
Federal funds sold.......................................... 16,600 11,616
Investment securities available for sale, at market value
(amortized cost of $40,573,000 and $34,748,000
at December 31, 1997 and 1996, respectively).............. 40,666 34,747
Loans....................................................... 268,558 259,427
Less: Allowance for possible loan losses.................. (4,074) (4,182)
---------------------------
Net loans............................................. 264,484 255,245
---------------------------
Premises and equipment, net................................. 11,790 11,334
Accrued interest receivable................................. 2,039 2,164
Deferred federal income taxes............................... 1,086 1,312
Other real estate owned..................................... 25 1,523
Other assets................................................ 938 968
---------------------------
Total assets.......................................... $ 374,210 $ 345,747
---------------------------
LIABILITIES
- -----------
Deposits:
Demand, noninterest-bearing............................... $ 101,188 $ 81,865
Savings................................................... 165,739 162,440
Time...................................................... 61,879 58,878
---------------------------
Total deposits........................................ 328,806 303,183
Other liabilities........................................... 6,055 6,756
---------------------------
Total liabilities..................................... 334,861 309,939
---------------------------
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY
- --------------------
Common stock, par value $1,
authorized, 5,000,000 shares,
issued 2,519,379 shares and 2,503,885 shares
as of December 31, 1997 and 1996, respectively,
and outstanding 2,185,609 shares and
2,201,065 shares as of December 31, 1997
and 1996, respectively.................................... 2,519 2,504
Paid-in capital in excess of par value...................... 4,589 4,445
Unrealized investment appreciation/(depreciation), net of
deferred income taxes..................................... 62 (1)
Retained earnings........................................... 34,946 30,399
---------------------------
42,116 37,347
Less: Common stock in treasury, at cost -- 333,770 and
302,820 shares at December 31, 1997 and 1996,
respectively.............................................. (2,767) (1,539)
---------------------------
Total shareholders' equity................................ 39,349 35,808
---------------------------
Total liabilities and shareholders' equity................ $ 374,210 $ 345,747
---------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
(in thousands, except for share and per share data)
For the years ended December 31 1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Net interest income:
Interest income:
Interest and fees on loans................................ $ 22,083 $ 21,513 $ 19,627
Interest on federal funds sold............................ 935 257 813
Interest and dividends on investment securities:
Taxable interest income................................. 1,916 2,082 2,491
Tax-exempt interest income.............................. 283 406 607
Dividend income........................................... 80 79 79
--------------------------------------------------
Total interest income................................. 25,297 24,337 23,617
Interest expense on deposits................................ 6,929 6,490 7,246
--------------------------------------------------
Net interest income......................................... 18,368 17,847 16,371
Loan loss provision......................................... 200 350 500
--------------------------------------------------
Net interest income after loan loss provision............... 18,168 17,497 15,871
--------------------------------------------------
Other income:
Fees for trust services................................... 7,698 5,936 5,496
Service charges on deposit accounts....................... 1,124 1,081 1,049
Other fees and service charges............................ 1,378 1,280 1,240
Net gain on sale of loans................................. 509 398 479
Gain on sale of other real estate owned................... 379 1,081 137
Other real estate owned income............................ 0 74 353
Other operating income.................................... 661 573 443
--------------------------------------------------
Total other income.................................... 11,749 10,423 9,197
--------------------------------------------------
Other expenses:
Salaries-regular.......................................... 8,604 7,594 6,906
Salaries-other............................................ 1,655 1,045 1,112
Employee benefits......................................... 1,791 1,585 1,890
Occupancy expense......................................... 1,365 1,537 1,441
Furniture, fixtures, and equipment........................ 1,565 1,246 877
Advertising............................................... 1,069 991 868
Professional fees......................................... 822 677 701
Computer processing....................................... 584 836 1,174
Merchant credit card processing........................... 390 376 314
Stationery and supplies................................... 322 355 279
Insurance................................................. 188 159 486
Net cost of operation of other real estate owned.......... 9 97 52
Other operating expenses.................................. 2,473 2,480 2,225
--------------------------------------------------
Total other expenses.................................. 20,837 18,978 18,325
--------------------------------------------------
Income before income taxes.................................. 9,080 8,942 6,743
Applicable income taxes..................................... 2,950 2,900 2,100
--------------------------------------------------
Net income.................................................. $ 6,130 $ 6,042 $ 4,643
--------------------------------------------------
Earnings per common share................................... $ 2.79 $ 2.76 $ 2.12
Earnings per common share-assuming dilution................. $ 2.67 $ 2.66 $ 2.08
Weighted-average shares outstanding......................... 2,196,081 2,192,547 2,188,528
Dilutive potential common shares............................ 101,830 75,849 45,370
--------------------------------------------------
Adjusted weighted-average shares............................ 2,297,911 2,268,396 2,233,898
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(in thousands)
For the years ended December 31 1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net income.................................................. $ 6,130 $ 6,042 $ 4,643
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 200 350 500
Provision for depreciation and amortization............... 1,091 1,142 986
Loans originated for resale............................... (78,407) (56,915) (61,105)
Proceeds from sale of loans............................... 75,874 55,276 67,826
Net Gain on sale of loans................................. (509) (398) (479)
Net gain on disposal of other real estate owned........... (379) (1,081) (137)
Provision for deferred income taxes....................... 194 (161) (148)
Change in income taxes payable/refundable................. -- -- 160
Change in accrued interest receivable..................... 125 299 (464)
Change in accrued interest payable........................ (345) 1,443 101
Other..................................................... 1,485 (713) 944
------------------------------------------
Net cash provided by operating activities............... 5,459 5,284 12,827
------------------------------------------
INVESTING ACTIVITIES:
- --------------------
Purchases of investment securities........................ (30,013) (12,086) (21,289)
Proceeds from maturities of investment securities......... 15,200 16,685 22,320
Proceeds from sales of investment securities available for
sale.................................................... 27 9,502 --
Proceeds from calls of investment securities.............. 8,955 9,905 --
Proceeds on disposition of other real estate owned........ 1,879 3,462 415
Purchase of other real estate owned....................... -- (141) (404)
Capitalization of costs of other real estate owned........ (2) -- (193)
Loan repayments, net of originations...................... 26,462 18,974 12,765
Purchase of automobile retail installment contracts....... (32,859) (40,831) (26,088)
Purchases of premises and equipment....................... (1,542) (557) (1,309)
------------------------------------------
Net cash (used)/provided by investing activities........ (11,893) 4,913 (13,783)
------------------------------------------
FINANCING ACTIVITIES:
- --------------------
Change in demand and savings deposits..................... 22,622 1,837 (17,049)
Change in time deposits................................... 3,001 (16,255) 33,313
Dividends paid............................................ (1,583) (2,017) (1,095)
Repayment of mortgage debt................................ (1,809) (54) (49)
Proceeds from issuance of common stock.................... 260 93 52
Purchase of Treasury Stock................................ (1,329) -- --
------------------------------------------
Net cash provided/(used) by financing activities........ 21,162 (16,396) 15,172
------------------------------------------
Change in cash and cash equivalents......................... 14,728 (6,199) 14,216
Cash and cash equivalents at beginning of year.............. 38,454 44,653 30,437
------------------------------------------
Cash and cash equivalents at end of year.................... $ 53,182 $ 38,454 $ 44,653
------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
- ----------------------------------
Cash paid during the year for:
Income taxes............................................ $ 2,153 $ 3,340 $ 1,414
Interest................................................ 6,835 5,047 7,145
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
(in thousands, except for shares of common stock)
Shares of Unrealized
Common Common Paid-in Retained Gains Treasury
For the years ended 1997, 1996, and 1995 Stock issued Stock Capital Earnings (Losses) Stock
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.................... 1,245,100 $1,245 $5,559 $22,826 $(945) $(1,539)
Net income.................................... -- -- -- 4,643 -- --
Dividends declared, $0.50 per share........... -- -- -- (1,095) -- --
Change in unrealized gains (losses), net of
income taxes of $596,000.................... -- -- -- -- 1,157 --
Common stock issued........................... 1,500 1 51 -- -- --
Common stock issued in conjunction with the
2-for-1 stock split, effective December 29,
1995........................................ 1,246,600 1,247 (1,247) -- -- --
---------------------------------------------------------------------------------
Balance, December 31, 1995.................... 2,493,200 2,493 4,363 26,374 212 (1,539)
Net income.................................... -- -- -- 6,042 -- --
Dividends declared, $0.92 per share........... -- -- -- (2,017) -- --
Change in unrealized gains (losses), net of
income taxes of $109,000.................... -- -- -- -- (213) --
Purchase of treasury stock.................... -- -- -- -- -- (138)
Retirement of treasury stock.................. (4,975) (5) (133) -- -- 138
Common stock issued........................... 15,660 16 215 -- -- --
---------------------------------------------------------------------------------
Balance, December 31, 1996.................... 2,503,885 2,504 4,445 30,399 (1) (1,539)
Net income.................................... -- -- -- 6,130 -- --
Dividends declared, $0.72 per share........... -- -- -- (1,583) -- --
Change in unrealized gains (losses), net of
income taxes of $32,000..................... -- -- -- -- 63 --
Purchase of treasury stock.................... -- -- -- -- -- (1,329)
Retirement of treasury stock.................. (2,006) (2) (99) -- -- 101
Common stock issued........................... 17,500 17 243 -- -- --
---------------------------------------------------------------------------------
Balance, December 31, 1997.................... 2,519,379 $2,519 $4,589 $34,946 $ 62 $(2,767)
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION:
- -------------------------
The consolidated financial statements include the accounts of Bryn Mawr Bank
Corporation (the "Corporation"), The Bryn Mawr Trust Company (the "Bank"), and
Tax Counsellors of Bryn Mawr Inc. ("TCBM").
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") 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. For all
years presented, all adjusting entries required for the fair presentation of the
financial statements were made. All such adjustments were of a normal recurring
nature. All significant intercompany transactions and accounts have been
eliminated upon consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------
The accounting policies of the Corporation conform to GAAP and to general
practices of the banking industry. The significant accounting policies are as
follows:
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash and due from banks, federal funds sold,
and interest-bearing deposits with other banks with original maturities of three
months or less. Cash balances reserved to meet regulatory requirements of the
Federal Reserve Board amounted to $10,601,000 and $10,487,000 at December 31,
1997 and 1996, respectively.
INVESTMENT SECURITIES:
As required by the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"), all entities must allocate their investments among three categories
as applicable: (1) trading, (2) available for sale, and (3) held to maturity.
Management categorized all of its investment securities as available for sale as
part of its asset/liability management strategy since they may be sold in
response to changes in interest rates, prepayments, and similar factors.
Investments in this classification are reported at the current market value with
net unrealized gains or losses, net of the applicable deferred tax effect, being
added to or deducted from the Corporation's total shareholders' equity on the
balance sheet. As of December 31, 1996, shareholders' equity was decreased by
$1,000 due to unrealized losses of $1,000 in the investment portfolio. As of
December 31, 1997, shareholders' equity was increased by $62,000 due to
unrealized gains (net of $32,000 in deferred income taxes)of $94,000 in the
investment securities portfolio.
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.
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 current 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 risk or 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 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 $3,524,000 and $2,069,000 at December 31, 1997
and 1996, respectively, were put on a nonaccrual basis and any outstanding
accrued interest receivable on such loans, at the time they were put on a
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
21
<PAGE>
or fair value of the collateral, if the loan is collateral dependent. As of
December 31, 1997, no impaired loans were measured using the present value of
expected future cash flows. As of December 31, 1996, impaired loans measured
using the present value of expected future cash flows amounted to $165,000.
Impaired loans measured by the fair value of the loan's collateral amounted to
$3,524,000 and $1,904,000, respectively.
If the loan valuation is less than the recorded value of the loan, an impairment
reserve is 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 December 31, 1997 and 1996, there were
$791,000 and $1,381,000, respectively, of impaired loans for which there is a
related allowance for loan losses. The total related allowance for loan loss on
impaired loans at December 31, 1997 and 1996 was $226,000 and $191,000,
respectively. Impaired loans for which no loan loss allowance was allocated
amounted to $2,733,000 and $688,000 at December 31, 1997 and 1996. Average
impaired loans during both 1997 and 1996 amounted to $2,927,000 and $2,237,000,
respectively.
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 in either 1997 or 1996. 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. Based on the above criteria, during 1997,
$409,000 in loan balances were removed from impaired status and returned to
accrual status. No loans considered impaired during 1996 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.
LOAN LOSS PROVISION:
The loan loss provision charged to operating expenses is based on those factors
which, in management's judgement, deserve current recognition in estimating
possible loan losses including the continuing evaluation of the loan portfolio
and the Bank's past loan loss experience. The allowance for possible loan losses
is an amount that management believes will be adequate to absorb losses inherent
in existing loans.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated depreciation. The
provision for depreciation is computed on a straight-line basis over the
estimated useful lives, as follows: premises--10 to 50 years, and equipment--3
to 20 years. Leasehold improvements are being amortized over the shorter of the
estimated useful life or the term of the lease.
Maintenance and repairs are charged to expense; major renewals and betterments
are capitalized. Gains and losses on dispositions are reflected in current
operations.
INCOME TAXES:
The Corporation files a consolidated Federal income tax return with its
subsidiaries. Certain items of income and expense (primarily loan origination
fees, provision for loan loss and other real estate owned losses) are reported
in different periods for tax purposes. Deferred taxes are provided on such
temporary differences existing between financial and income tax reporting,
subject to the deferred tax asset realization criteria required under Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109").
TRUST INCOME:
Trust Division income is recognized on the cash basis of accounting. Reporting
such income on a cash basis does not materially affect net income.
RECENTLY ISSUED 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 the
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, "Earnings per Share", ("SFAS No. 128").
SFAS No. 128 specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly
22
<PAGE>
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; the weighted-average number of shares is increased to
include the number of additional common shares that would have been outstanding
if the dilutive common stock equivalents 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. All prior periods have been restated.
3. INVESTMENT SECURITIES:
- -------------------------
The amortized cost and estimated market value of investments, all of which were
classified as available for sale, are as follows:
(IN THOUSANDS) 1997
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE VALUE
------------------------------------------------------
Obligations of the
U.S. Government and
agencies........... $35,030 $ 71 $29 $35,072 $35,072
State & political
subdivisions....... 4,270 38 -- 4,308 4,308
Other securities..... 1,273 13 -- 1,286 1,286
------------------------------------------------------
Total............... $40,573 $122 $29 $40,666 $40,666
------------------------------------------------------
(in thousands) 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
------------------------------------------------------
Obligations of the
U.S. Government and
agencies........... $26,524 $16 $84 $26,456 $26,456
State & political
subdivisions....... 6,924 58 -- 6,982 6,982
Other securities..... 1,300 9 -- 1,309 1,309
------------------------------------------------------
Total............... $34,748 $83 $84 $34,747 $34,747
------------------------------------------------------
At December 31, 1997, securities having a book value of $12,540,595 were pledged
as collateral for public funds, trust deposits, and other purposes.
The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
(IN THOUSANDS) 1997
--------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------------------
Due in one year or less................................... $ 8,983 $ 8,997
Due after one year through five years..................... 30,317 30,383
Due after five years through ten years.................... -- --
Due after ten years....................................... -- --
Other securities.......................................... 1,273 1,286
--------------------
Total.................................................... $40,573 $40,666
--------------------
Proceeds from sales of debt securities are as follows:
(IN THOUSANDS) 1997 1996 1995
----------------------
Proceeds................................................ $ -- $9,502 $ --
Gross gains............................................. -- 2 --
Gross losses............................................ -- -- --
4. LOANS:
- ---------
Loans outstanding at December 31 are detailed by category as follows:
(IN THOUSANDS) 1997 1996
------------------
Real estate loans:
Permanent mortgage loans................................... $102,474 $ 95,588
Construction loans......................................... 13,647 7,639
Commercial and industrial loans............................. 75,474 74,688
Loans to individuals for household, family, and other
consumer expenditures..................................... 76,963 81,512
------------------
Total.................................................... $268,558 $259,427
------------------
All loans past due 90 days or more, except consumer loans, are placed on
nonaccrual status. Nonperforming loans amounted to $1,169,000 and $907,000 at
December 31, 1997 and 1996, respectively. Forgone interest on nonaccrual loans
was $298,000, $144,000, and $59,000 in 1997, 1996, and 1995, respectively.
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
- --------------------------------------
The summary of the changes in the allowance for possible loan losses is as
follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Balance, January 1................................... $4,182 $3,652 $3,618
Charge-offs.......................................... (433) (268) (769)
Recoveries........................................... 125 448 303
------------------------
Net charge-offs/(recoveries)........................ (308) 180 (466)
Loan loss provision.................................. 200 350 500
------------------------
Balance, December 31................................. $4,074 $4,182 $3,652
------------------------
6. PREMISES AND EQUIPMENT:
- --------------------------
A summary of premises and equipment at December 31 is as follows:
(IN THOUSANDS) 1997 1996
----------------
Land.......................................................... $ 2,973 $ 2,973
Buildings..................................................... 10,484 10,479
Furniture and equipment....................................... 9,785 8,350
Leasehold improvements........................................ 184 169
----------------
23,426 21,971
Less accumulated depreciation................................. 11,636 10,637
----------------
Total........................................................ $11,790 $11,334
----------------
23
<PAGE>
During 1997, the Corporation paid off a mortgage loan on its property located at
10 Bryn Mawr Avenue. As of December 31, 1997, the Corporation has borrowings
outstanding of $694,000. The borrowings are collateralized by a property with a
book value of $1,714,000. The weighted average interest rate on the borrowings
was 9.54% and 9.75% in 1997 and 1996, respectively.
7. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
- --------------------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of the
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate such value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other market value techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Corporation.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS:
The carrying amounts reported in the balance sheet for cash and cash equivalents
approximate their fair values.
INVESTMENT SECURITIES:
Estimated fair values for investment securities are based on quoted market
price, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.
LOANS:
For variable rate loans that reprice frequently and which have no significant
change in credit risk, estimated fair values are based on carrying values. Fair
values of certain mortgage loans and consumer loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. The estimated
fair value of nonperforming loans is based on discounted estimated cash flows as
determined by the internal loan review of the Bank or the appraised market value
of the underlying collateral, as determined by independent third party
appraisers.
DEPOSITS:
The estimated fair values disclosed for noninterest-bearing demand deposits, NOW
accounts, and Market Rate and Market Rate Checking accounts are, by definition,
equal to the amounts payable on demand at the reporting date (i.e., their
carrying amounts). Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of expected monthly maturities on the
certificate of deposit. SFAS No. 107 defines the fair value of demand deposits
as the amount payable on demand and prohibits adjusting estimated fair value
from any value derived from retaining those deposits for an expected future
period of time.
OTHER LIABILITIES:
Estimated fair values of long term mortgages, collateralized by one property
included in premises and equipment, are based on discounted cash flow analyses,
using interest rates currently being offered for similar types of loans and
amortizing the loan under existing amortization tables for each loan.
OFF-BALANCE SHEET INSTRUMENTS:
Estimated fair values of the Corporation's off-balance sheet instruments
(standby letters of credit and loan commitments) are based on fees currently
charged to enter into similar loan agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing. Since fees and
rates charged for off-balance sheet items are at market levels when set, there
is no material difference between the stated amount and estimated fair values of
off-balance sheet instruments.
The carrying amount and estimated fair value of the Corporation's financial
instruments at December 31 are as follows:
(IN THOUSANDS) 1997 1996
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------
Financial assets:
Cash and due from banks.............. $ 34,464 $ 34,464 $ 26,717 $ 26,717
Interest-bearing deposits
with other banks................... 2,118 2,118 121 121
Federal funds sold................... 16,600 16,600 11,616 11,616
Investment securities................ 40,666 40,666 34,747 34,747
Net loans............................ 264,484 269,656 255,245 255,417
----------------------------------------
Total financial assets............. $358,332 $363,504 $328,446 $328,618
----------------------------------------
Financial liabilities:
Deposits............................. $328,806 $328,644 $303,183 $303,131
Other liabilities.................... 694 719 2,503 2,811
----------------------------------------
Total financial liabilities........ $329,500 $329,363 $305,686 $305,942
----------------------------------------
Off-balance sheet instruments......... $ 80,607 $ 80,607 $ 69,653 $ 69,653
----------------------------------------
24
<PAGE>
8. APPLICABLE FEDERAL INCOME TAXES:
- -----------------------------------
The components of the net deferred tax asset as of December 31 are as follows:
(IN THOUSANDS) 1997 1996
-------------------
Deferred tax assets:
Other real estate owned.................................. $ -- $ 364
Loan loss reserve........................................ 659 591
Deferred loan fees....................................... 34 46
Depreciation............................................. 15 --
Other reserves........................................... 410 348
-------------------
1,118 1,349
Deferred tax liabilities:
Depreciation............................................. -- (37)
Unrealized appreciation on investment securities......... (32) --
-------------------
Total deferred tax assets................................. $1,086 $1,312
-------------------
No valuation allowance was recorded as of December 31, 1997 and 1996.
The provisions for federal income taxes consist of the following:
(IN THOUSANDS) 1997 1996 1995
------------------------
Currently payable..................................... $2,756 $3,061 $2,008
Deferred.............................................. 194 (161) 92
------------------------
Total................................................. $2,950 $2,900 $2,100
------------------------
The sources of temporary differences resulting in deferred federal income taxes
and the approximate tax effect of each are as follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Other real estate owned.............................. $364 $ (8) $ 10
Loan loss provision.................................. (68) (119) 47
Depreciation......................................... (52) (83) (33)
Pension expense...................................... 9 (37) (67)
Deferred loan fees................................... 12 27 26
Other................................................ (71) 59 109
------------------------
Total................................................ $194 $ (161) $ 92
------------------------
Applicable federal income taxes differed from the amount derived by applying the
statutory federal tax rate to income as follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Statutory federal tax rate........................... 34% 34% 34%
------------------------
Computed "expected" tax expense...................... $3,087 $3,040 $2,201
Benefit reductions in taxes resulting from tax-exempt
income............................................. (113) (181) (285)
Other, net........................................... (24) 41 184
------------------------
Actual tax expense................................... $2,950 $2,900 $2,100
------------------------
9. EMPLOYEE BENEFIT PLANS:
- --------------------------
PENSION PLAN:
The Bank sponsors a noncontributory, defined benefit pension plan (the "Plan")
covering substantially all employees. The Plan provides for normal retirement at
age 65 and, under certain conditions, also permits early retirement and payment
of spouse's benefits. Total pension (income) expense under the Plan amounted to
($122,000), $37,000 and $122,000 for the years ended December 31, 1997, 1996,
and 1995, respectively.
Pension (income) expense for the years ended December 31 is comprised of the
following:
(IN THOUSANDS) 1997 1996 1995
------------------------
Service cost--benefits earned during the period...... $ 543 $ 480 $ 428
Interest cost on projected benefit obligation........ 754 668 669
Actual return on Plan assets......................... (3,469) (2,196) (3,009)
Unrecognized gain.................................... -- -- --
Net amortization and deferral........................ 2,050 1,085 2,034
------------------------
Net periodic pension (income) cost................... $ (122) $ 37 $ 122
------------------------
The following table presents a reconciliation of the funded status of the
defined benefit plan at December 31, 1997 and 1996. The accrued pension
liability is included in "Other liabilities" on the accompanying consolidated
balance sheets.
(IN THOUSANDS) 1997 1996
-------------------
Actuarial present value of benefit obligation:
Accumulated benefit obligation (including vested benefits
of $9,793,000 and $7,867,000 as of December 31, 1997
and 1996).............................................. $ (9,554) $ (7,955)
-------------------
Projected benefit obligation for service rendered to
date.................................................... (11,886) (9,811)
Plan assets at fair value (invested primarily in the
Bank's temporary, income, and equity common trust
funds).................................................. 17,527 14,508
-------------------
Plan assets in excess of projected benefit obligation..... 5,641 4,697
Unrecognized net gain..................................... (5,754) (4,932)
Unrecognized prior service cost........................... -- --
-------------------
Accrued pension liability included in consolidated
balance sheets.......................................... $ (113) $ (235)
-------------------
Significant assumptions used in determining the accrued pension obligation were
as follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Discount rate........................................ 7.0% 7.5% 7.0%
Projected compensation increase...................... 5.0 5.0 5.0
Expected long-term rate of return on plan assets..... 8.0 8.0 8.0
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN:
The Bank sponsors a noncontributory Supplemental Employee Retirement Plan (the
"SERP") covering three employees. The SERP provides for supplemental retirement
benefits, in an amount that is equal to the difference between what would have
been payable under the Plan and the maximum amount payable under current
regulations. SERP expense was first recognized in 1995. SERP expense was
$94,000, $72,000 and $71,000 for 1997, 1996 and 1995, respectively.
25
<PAGE>
SERP expense for the year ended December 31 is comprised of the following:
(IN THOUSANDS) 1997 1996 1995
-------------------------
Service cost--benefits earned
during the period........... $12 $ 9 $ 9
Interest cost on projected
benefit obligation.......... 35 25 24
Actual return on Plan
assets...................... -- -- --
Unrecognized gain............. -- -- --
Net amortization and
deferral.................... 47 38 38
-------------------------
Net periodic SERP cost........ $94 $72 $71
-------------------------
The following table presents a reconciliation of the accrued liability for the
SERP as of December 31, 1997 and 1996. The accrued SERP liability is included in
"Other liabilities" on the accompanying consolidated balance sheets.
(IN THOUSANDS) 1997 1996
-------------
Actuarial present value of benefit
obligation:
Accumulated benefit obligation (including
vested benefits of $266,000 and $71,000
as of December 31, 1997 and 1996,
respectively)........................... $(266) $ (71)
-------------
Projected benefit obligation for service
rendered to date......................... (736) (363)
Unrecognized net (gain) loss............... 174 (6)
Unrecognized prior service cost............ 325 226
Adjustment to recognize minimum
liability................................ (29) --
-------------
Accrued SERP liability included in
consolidated balance sheets.............. $(266) $(143)
-------------
Significant assumptions used in determining the accrued pension obligation were
as follows:
1997 1996
-------------------
Discount rate......................... 7.0% 7.5%
Projected compensation increase....... 5.0 5.0
Expected long-term rate of return on
plan assets......................... 8.0 8.0
THRIFT PLAN:
The Corporation sponsors a thrift and savings plan (the "Thrift Plan") covering
substantially all employees. The Thrift Plan provides for the Corporation to
make incentive contributions equal to the participant's basic contribution up to
a maximum of 3% of compensation and provides for voluntary employee
contributions.
All contributions and interest earned thereon are vested immediately. The Thrift
Plan expense was approximately $208,000, $180,000, and $165,000 in 1997, 1996,
and 1995, respectively.
POST-RETIREMENT BENEFITS:
In addition to providing pension and thrift plan benefits, the Corporation
provides certain health care and life insurance benefits for certain retired
employees. The Corporation adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Post-Retirement Benefits other than
Pensions" ("SFAS No. 106"), in the first quarter of 1993. SFAS No. 106 requires
that the expected cost of such benefits be actuarially determined and accrued
ratably from the date of hire to the date the employee is fully eligible to
receive benefits. The Corporation elected to amortize the net obligation
existing as of the date of adoption (transition obligation) over the remaining
service periods of active plan participants.
The net periodic post-retirement benefit cost for 1997, 1996 and 1995 was
$298,000, $162,000 and $335,000, respectively.
The net periodic post-retirement benefit cost for the years ended December 31 is
comprised of the following:
(IN THOUSANDS) 1997 1996 1995
------------------
Service cost -- benefits attributed
to service during the period...... $ 11 $ 11 $ 12
Interest cost on accumulated
postretirement benefit
obligation........................ 165 106 204
Amortization of transition
obligation........................ 122 122 119
Amortization of unrecognized gain... -- (77) --
-----------------
Net periodic post-retirement benefit
cost.............................. $298 $162 $335
-----------------
The assumed discount rate used in the calculation for the accumulated
post-retirement benefit obligation was 7.0% for 1997 and 7.5% for 1996. The
assumed health care cost trend rate for 1998 was 7% and was graded down in 1%
increments per year to an ultimate rate of 6% per year.
The following table summarizes the amounts recognized in the Corporation's
balance sheet as of December 31, 1997 and 1996:
(IN THOUSANDS) 1997 1996
-----------------
Accumulated post-retirement benefit
obligation............................... $(2,366) $(1,573)
Unrecognized variance of experience
different from that assumed and
unamortized transition obligation........ 1,910 1,223
-----------------
Accrued post-retirement benefit cost....... $ (456) $ (350)
-----------------
The impact of a 1% increase in the assumed health care cost trend rate for each
future year would be as follows:
(IN THOUSANDS) 1997
-------
Accumulated post-retirement benefit obligation
as of December 31....................................... $2,532
Service cost.............................................. 11
Interest cost............................................. 177
10. STOCK OPTION PLAN:
- ----------------------
At December 31, 1997, the Corporation maintains a stock option and stock
appreciation rights plan (the "Stock Option Plan"), which is described below.
The Corporation applies APB Opinion 25 and related interpretations in accounting
for the Stock Option Plan. Accordingly, no compensation cost has been recognized
for the Stock Option Plan. Had
26
<PAGE>
compensation for the Corporation's Stock Option Plan been determined based on
the fair value at the grant date for awards in 1997, 1996 and 1995, consistent
with the optional provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation", the Corporation's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
1997 1996 1995
----------------------
Net income -- as reported..... $6,130 $6,042 $4,643
Net income pro forma.......... $6,003 $5,946 $4,568
Basic earnings per share -- as
reported.................... $2.79 $2.67 $2.08
Basic earnings per share --
pro forma................... $2.73 $2.63 $2.04
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997: dividend yield of 3.09
percent, expected volatility of 43.2 percent, expected life of nine years and
risk-free interest rates of 7.1, 6.5 and 6.3 percent, respectively.
The Plan had, prior to 1994, up to 108,000 authorized and unissued or Treasury
shares of the Corporation's common stock reserved for issuance under the Plan.
During 1994, the shareholders approved an additional 108,860 shares for issuance
under the Plan. The option to purchase shares of the Corporation's common stock
may be issued to key officers. During 1995, the shareholders approved the
issuance of 40,000 shares, 10,000 to be granted to outside directors, for 4
years after each Annual Meeting. The option price will be set at the last sale
price for the stock on the 3rd business day following the Corporation's Annual
Meeting.
Options granted may either be "incentive stock options" within the meaning of
the Internal Revenue Service code, or non-qualified options. The stock options
are exercisable over a period determined by the Board of Directors; however, the
option period will not commence earlier than one year or be longer than ten
years from the date of the grant. The Plan provides that the option price at the
date of grant will not be less than the fair market value of the Corporation's
common stock. The following is a summary of transactions under the Plan:
WEIGHTED
SHARES AVAILABLE AVERAGE
UNDER FOR PRICE PER EXERCISE
OPTION OPTION SHARE PRICE
-----------------------------------------------
Balance at December 31,
1994.................. 181,660 1,260 $ 9.00 - $18.60 $15.08
Options authorized..... 40,000
Options granted........ 10,000 (10,000) $17.375 $17.38
Options exercised...... (3,000) $17.375 $17.38
Options expired........ (3,200) $15.50 - $18.60 $17.15
-------------------
Balance at December 31,
1995.................. 185,460 31,260 $ 9.00 - $18.60 $15.12
Options granted........ 9,000 (9,000) $25.00 $25.00
Options exercised...... (15,660) $13.50 - $16.50 $14.72
-------------------
Balance at December 31,
1996.................. 178,800 22,260 $ 9.00 - $25.00 $15.65
Options granted........ 9,000 (9,000) $33.19 $33.19
Options exercised...... (17,500) $14.00 - $25.00 $14.86
-------------------
Balance at December 31,
1997.................. 170,300 13,260 $ 9.00 - $33.19 $16.52
-------------------
Weighted-average
remaining contractual
life of options
outstanding at
December 31, 1997..... 6.25 years
The weighted-average fair value of options granted during 1995, 1996 and 1997
were $7.52, $10.64 and $13.99, respectively.
The number of exercisable shares at December 31, 1995, 1996 and 1997 were
105,420, 119,840 and 139,980, respectively, with respective weighted average
exercise prices of $14.42, $15.42 and $16.77.
Stock appreciation rights may be granted in tandem with non-qualified stock
options. No stock appreciation rights have been granted under the Plan. The
options had a $.12 per share, $.10 per share and $.04 per share dilutive effect
on earnings per share for the years ended December 31, 1997, 1996 and 1995,
respectively.
11. RELATED PARTY TRANSACTIONS:
- -------------------------------
The Corporation had loans outstanding directly to executive officers, directors
and certain other related parties of $3,506,000 and $3,465,000 at December 31,
1997 and 1996, respectively.
Following is a summary of these transactions:
(IN THOUSANDS) 1997 1996
-------------------
Balance, beginning of year............ $3,465 $2,898
Additions............................. 549 871
Amounts collected..................... (508) (304)
-------------------
Balance, end of year.................. $3,506 $3,465
-------------------
27
<PAGE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF
CREDIT RISK:
------------
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated statements of
financial condition. The contractual amounts of those instruments reflect the
extent of involvement the Corporation has in particular classes of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument of commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet financial
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the agreement. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Some of the commitments are expected to expire without
being drawn upon, and the total commitment amounts do not necessarily represent
future cash requirements. Total commitments to extend credit at December 31,
1997 are $76,940,000. The Corporation evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Corporation upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral varies but may include accounts
receivable, marketable securities, inventory, property, plant and equipment,
residential real estate, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to a
customer for a third party. Such standby letters of credits are issued to
support private borrowing arrangements. The credit risk involved in issuing
standby letters of credit is similar to that involved in extending loan
facilities to customers. The collateral varies, but may include accounts
receivable, marketable securities, inventory, property, plant and equipment, and
residential real estate for those commitments for which collateral is deemed
necessary. The Corporation's obligation under standby letters of credit as of
December 31, 1997 amounted to $3,667,000.
As of December 31, 1997, the Corporation had no loans sold with recourse
outstanding.
The Corporation grants construction, commercial, residential mortgage, and
consumer loans to customers primarily in Southeastern Pennsylvania. Although the
Corporation has a diversified loan portfolio, its debtors' ability to honor
their contracts is substantially dependent upon the general economic conditions
of the region.
13. RISKS AND UNCERTAINTIES:
- ----------------------------
The earnings of the Corporation depend on the earnings of the Bank. The Bank's
earnings are dependent upon both the level of net interest income and
non-interest revenue streams, primarily fees for trust services, that are earned
annually. Accordingly, the earnings of the Corporation are subject to risks and
uncertainties surrounding both its exposure to changes in the interest rate
environment and movements in financial markets.
Most of the Bank's lending activity is with customers located in southeastern
Pennsylvania. Lending is spread between commercial, consumer and real estate
related loans, including construction lending.
The financial statements of the Corporation are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.
Significant estimates are made by management in determining the allowance for
possible loan losses, the carrying value of other real estate owned and employee
benefit plan expense. Consideration is given to a variety of factors in
establishing these estimates, including current economic conditions, the results
of the internal loan review process, delinquency statistics, borrowers perceived
financial and managerial strengths and the adequacy of supporting collateral, if
collateral dependent, or the present value of future cash flows. Since the
allowance for possible loan losses and the carrying value of other real estate
owned are dependent, to a great extent, on general and other economic conditions
beyond the Bank's control, it is at least reasonably possible that the estimates
of the allowance for possible loan losses and the carrying value of other real
estate owned could differ materially from currently reported values in the near
term.
28
<PAGE>
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- --------------------------------------------------
QUARTERS ENDING 1997
(IN THOUSANDS, EXCEPT ------------------------------
PER SHARE DATA) 3/31 6/30 9/30 12/31
------------------------------
Interest income....... $6,125 $6,255 $6,482 $6,435
Interest expense...... 1,682 1,776 1,826 1,645
Net interest income... 4,443 4,479 4,656 4,790
Provision for loan
losses.............. 50 50 50 50
Income before income
taxes............... 2,178 2,075 2,311 2,516
Net income............ 1,458 1,390 1,540 1,742
Earnings per common
share............... 0.66 0.63 0.70 0.80
Earnings per common
share -- assuming
dilution............ 0.63 0.60 0.67 0.76
Quarters ending 1996
(IN THOUSANDS, EXCEPT ------------------------------
PER SHARE DATA) 3/31 6/30 9/30 12/31
------------------------------
Interest income....... $5,959 $6,053 $6,203 $6,122
Interest expense...... 1,679 1,592 1,624 1,595
Net interest income... 4,280 4,461 4,579 4,527
Provision for loan
losses.............. 125 75 75 75
Income before income
taxes............... 2,597 1,915 2,245 2,185
Net income............ 1,757 1,275 1,499 1,511
Earnings per common
share............... 0.80 0.58 0.68 0.69
Earnings per common
share -- assuming
dilution............ 0.77 0.56 0.66 0.66
15. CONDENSED FINANCIAL STATEMENTS:
- -----------------------------------
The condensed financial statements of the Corporation (parent company only) as
of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, are as follows:
CONDENSED BALANCE SHEETS
(IN THOUSANDS) 1997 1996
-----------------
Assets:
Cash..................................... $ 967 $ 128
Investments in subsidiaries, at equity in
net assets............................. 34,922 33,932
Premises and equipment, net.............. 4,155 4,253
Other assets............................. -- 14
-----------------
Total assets........................... $40,044 $38,327
-----------------
Liabilities and shareholders' equity:
Mortgages payable........................ $ 694 $ 2,503
Other liabilities........................ 1 16
-----------------
Total liabilities...................... 695 2,519
Common stock, par value $1, authorized
5,000,000 shares, issued 2,519,379
shares and 2,503,885 shares as of
December 31, 1997 and 1996,
respectively, and outstanding 2,185,609
shares and 2,201,065 shares as of
December 31, 1997 and 1996,
respectively............................ 2,519 2,504
Paid-in capital in excess of par value.... 4,589 4,445
Unrealized investment appreciation
(depreciation), net of deferred income
taxes................................... 62 (1)
Retained earnings......................... 34,946 30,399
Less common stock in treasury, at cost --
333,770 shares and 302,820 shares as of
December 31, 1997 and 1996.............. (2,767) (1,539)
-----------------
Total shareholders' equity............. 39,349 35,808
-----------------
Total liabilities and shareholders'
equity............................... $40,044 $38,327
-----------------
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS) 1997 1996 1995
----------------------
Dividends from The Bryn Mawr
Trust Company............... $5,359 $2,017 $1,095
Interest and other income..... 237 237 236
----------------------
Total operating income....... 5,596 2,254 1,331
Expenses...................... 360 445 478
----------------------
Income before equity in
undistributed income of
subsidiaries................ 5,236 1,809 853
Equity in undistributed income
of subsidiaries............. 852 4,162 3,708
----------------------
Income before income taxes.... 6,088 5,971 4,561
Federal income tax benefit.... 42 71 82
----------------------
Net income.................... $6,130 $6,042 $4,643
----------------------
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) 1997 1996 1995
------------------------
Operating activities:
Net income................... $6,130 $6,042 $4,643
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of subsidiaries.... (852) (4,162) (3,708)
Depreciation expense.......... 98 98 98
Other......................... (1) (56) (42)
------------------------
Net cash provided by
operating activities..... 5,375 1,922 991
Investing Activities:
Investment in Tax Counsellors
of Bryn Mawr............... (75) -- --
------------------------
Net cash used by investing
activities............... (75) -- --
Financing activities:
Dividends paid............... (1,583) (2,017) (1,095)
Repayment of mortgage debt... (1,809) -- --
Repurchase of treasury
stock...................... (1,329) -- --
Proceeds from issuance of
stock...................... 260 93 52
------------------------
Net cash used by financing
activities............... (4,461) (1,924) (1,043)
------------------------
(Increase) decrease in cash
and cash equivalents........ 839 (2) (52)
Cash and cash equivalents at
beginning of year........... 128 130 182
------------------------
Cash and cash equivalents at
end of year................. $ 967 $ 128 $ 130
------------------------
These statements should be read in conjunction with the other notes related to
the consolidated financial statements.
As a bank and trust company subject to the Pennsylvania Banking Code (the
"Banking Code") of 1965 as amended, the Bank is subject to legal limitations as
to the amount of dividends that can be paid to its shareholder, the Corporation.
The Banking Code restricts the payment of dividends by the Bank to the amount of
its retained earnings. As of December 31, 1997, the Bank's retained earnings
amounted to $28,196,000. Therefore, as of December 31, 1997, dividends available
for payment to the Corporation are limited to $28,196,000. Since the sole source
of dividend funding for the Corporation's dividend payments to its shareholders
is the Bank's dividends, the Corporation is effectively limited as to
29
<PAGE>
the amount of dividends that it may pay to an amount equal to the limits placed
on the Bank, as discussed above.
16. SEGMENT INFORMATION:
- ------------------------
As a part of its operating segments, the Bank generates significant operating
profits from its banking, its trust and mortgage banking activities. The Bank's
Trust Division provides both corporate and individual trust products and
services to its customers. Assets under management were $1,666,472,000,
$1,229,926,000, and $1,039,804,000 at December 31, 1997, 1996, and 1995,
respectively. The Bank also originates and sells residential mortgage loans in
the secondary mortgage loan market. The Bank originated and sold mortgage loans
in the secondary mortgage loan market amounting to $75,874,000, $55,276,000, and
$67,826,000 in 1997, 1996, and 1995, respectively.
Segment information for the years ended December 31, 1997, 1996, and 1995 is as
follows:
1997
--------------------------------------------
MORTGAGE
(IN THOUSANDS) BANKING TRUST BANKING CONSOLIDATED
--------------------------------------------
Interest income....... $ 24,960 $ -- $ 337 $ 25,297
--------------------------------------------
Other operating
income--
Fees for trust
services........... 7,698 -- 7,698
Service charges on
checking accounts.. 1,124 -- -- 1,124
Other fees and
service charges.... 503 -- 875 1,378
Net gains on sale of
loans.............. 43 -- 466 509
Gains on sale of
other real estate
owned.............. 379 -- -- 379
Other................ 657 -- 4 661
--------------------------------------------
Total other operating
income.............. 2,706 7,698 1,345 11,749
--------------------------------------------
Total gross
revenues............ $ 27,666 $7,698 $1,682 $ 37,046
--------------------------------------------
Operating profit...... $ 5,489 $2,810 $ 921 $ 9,220
--------------------------------------------
General corporate
expenses............ -- -- -- $ 140
--------------------------------------------
Income before income
taxes............... -- -- -- $ 9,080
--------------------------------------------
Identifiable assets at
December 31......... $ 374,048 $ 158 $ 4 $374,210
--------------------------------------------
Capital
expenditures........ $ 1,462 $ 80 -- $ 1,542
--------------------------------------------
Depreciation and
amortization........ $ 983 $ 105 $ 3 $ 1,091
--------------------------------------------
1996
--------------------------------------------
Mortgage
(IN THOUSANDS) Banking Trust Banking Consolidated
--------------------------------------------
Interest income....... $ 24,081 $ -- $ 256 $ 24,337
--------------------------------------------
Other operating
income--
Fees for trust
services........... 5,936 -- 5,936
Service charges on
checking accounts.. 1,081 -- -- 1,081
Other fees and
service charges.... 458 -- 822 1,280
Net gains on sale of
loans.............. 35 -- 363 398
Gains on sale of
other real estate
owned.............. 1,081 -- -- 1,081
Other real estate
owned revenue...... 74 -- -- 74
Other................ 520 -- 53 573
--------------------------------------------
Total other operating
income.............. 3,249 5,936 1,238 10,423
--------------------------------------------
Total gross
revenues............ $ 27,330 $5,936 $1,494 $ 34,760
--------------------------------------------
Operating profit...... $ 6,144 $2,119 $ 779 $ 9,042
--------------------------------------------
General corporate
expenses............ -- -- -- $ 100
--------------------------------------------
Income before income
taxes............... -- -- -- $ 8,942
--------------------------------------------
Identifiable assets at
December 31......... $345,551 $ 189 $ 7 $345,747
--------------------------------------------
Capital
expenditures........ $ 409 $ 143 5 $ 557
--------------------------------------------
Depreciation and
amortization........ $ 1,007 $ 125 $ 10 $ 1,142
--------------------------------------------
1995
--------------------------------------------
Mortgage
(IN THOUSANDS) Banking Trust Banking Consolidated
--------------------------------------------
Interest income....... $ 23,137 $ -- $ 480 $ 23,617
--------------------------------------------
Other operating
income--
Fees for trust
services........... -- 5,496 -- 5,496
Service charges on
checking accounts.. 1,049 -- -- 1,049
Other fees and
service charges.... 487 -- 753 1,240
Net gains on sale of
loans.............. 45 -- 434 479
Gains on sale of
other real estate
owned.............. 137 -- -- 137
Other real estate
owned revenue...... 353 -- -- 353
Other................ 443 -- -- 443
--------------------------------------------
Total other operating
income.............. 2,514 5,496 1,187 9,197
--------------------------------------------
Total gross
revenues............ $ 25,651 $5,496 $1,667 $ 32,814
--------------------------------------------
Operating profit...... $ 3,849 $2,083 $ 939 $ 6,871
--------------------------------------------
General corporate
expenses............ -- -- -- $ 128
--------------------------------------------
Income before income
taxes............... -- -- -- $ 6,743
--------------------------------------------
Identifiable assets at
December 31......... $354,774 $ 170 $ 12 $354,956
--------------------------------------------
Capital
expenditures........ $ 1,269 $ 34 -- $ 1,303
--------------------------------------------
Depreciation and
amortization........ $ 873 $ 99 $ 14 $ 986
--------------------------------------------
30
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of Bryn Mawr Bank Corporation:
We have audited the accompanying consolidated balance sheets of Bryn Mawr Bank
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bryn Mawr Bank
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 15, 1998
31
<PAGE>
Price Range of Shares
<TABLE>
<CAPTION>
1997 1996
High-Low Quotations High-Low Quotations
-------------------------------------------------------------------------------------
HIGH LOW DIVIDEND High Low Dividend
QUARTER BID BID DECLARED Bid Bid Declared
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st....................................... $36 3/4 $26 1/2 $0.18 $27 1/2 $25 $0.47*
2nd....................................... 35 3/4 33 0.18 26 1/4 22 3/4 0.15
3rd....................................... 45 7/8 35 1/4 0.18 26 1/4 23 1/4 0.15
4th....................................... 54 44 0.18 28 25 1/4 0.15
</TABLE>
The approximate number of holders of record of common stock as of December 31,
1997 was 503.
The shares are traded on the over-the-counter market, and the price information
was obtained from The National Association of Securities Dealers (NASD).
* First quarter 1996 dividend includes a nonrecurring dividend of $.32 per
share, paid to shareholders from the after tax proceeds of the sale of a
commercial property held in the Bank's other real estate owned portfolio. The
sale occured during the first quarter of 1996.
32
<PAGE>
[LOGO OF BRYN MAWR BANK CORPORATION APPEARS HERE]
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Bryn Mawr Bank Corporation on Form S-8 (File 033-12715 and 33-
61881) of our report dated January 15, 1998 on our audits of the consolidated
financial statements of Bryn Mawr Bank Corporation as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
which report is incorporated by reference in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
March 25, 1998
50
