<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934.
For Quarter ended September 30, 1999 Commission File Number 0-15261
------------------ -------
Bryn Mawr Bank Corporation
-----------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
-------------------------------------------------------------------
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
------------------------------------------------------------------
Former name, former address and fiscal year, if changed since last report.
Indicate by check whether the registrant (1) has filed all reports to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at November 2, 1999
--------------------------
Common Stock, par value $1 4,330,099
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED September 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the nine
months ended September 30, 1999 and 1998.........Page 1
Consolidated Statements of Income for the three
months ended September 30, 1999 and1998..........Page 2
Consolidated Balance Sheets as of September 30, 1999,
December 31, 1998 and September 30, 1998.........Page 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998.........Page 4
Consolidated Statements of Comprehensive Income for
the nine and three months ended
September 30, 1999 and 1998......................Page 5
Notes to Consolidated Financial Statements............Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..Page 11
PART II - OTHER INFORMATION...............................Page 23
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1999 1998**
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans....................................... $ 18,934 $ 17,260
Interest on federal funds sold................................... 396 522
Interest on interest bearing deposits with banks................. 75 40
Interest and dividends on investment securities:
U.S. Treasury securities........................................ 187 552
U.S. Government Agency securities............................... 1,071 857
Obligations of states and political subdivisions................ 148 171
Dividend income................................................. 64 61
----------- -----------
Total interest income................................................. 20,875 19,463
Interest expense on deposits........................................... 4,147 4,549
----------- -----------
Net interest income.................................................... 16,728 14,914
Loan loss provision.................................................... 187 87
----------- -----------
Net interest income after loan loss provision.......................... 16,541 14,827
----------- -----------
Other income:
Fees for trust services.......................................... 7,465 6,893
Service charges on deposits...................................... 873 863
Other service charges, commissions and fees...................... 749 706
Net gain on sale of loans........................................ 857 1,251
Net gain on sale of other real estate owned...................... 45 224
Other operating income........................................... 4,062 1,251
----------- -----------
Total other income..................................................... 14,051 11,188
----------- -----------
Other expenses:
Salaries and wages............................................... 11,262 9,266
Employee benefits................................................ 1,856 1,594
Occupancy and bank premises...................................... 1,405 1,026
Furniture, fixtures, and equipment............................... 1,458 1,287
Other operating expenses......................................... 5,925 5,071
----------- -----------
Total other expenses................................................... 21,906 18,244
----------- -----------
Income before income taxes............................................. 8,686 7,771
Applicable income taxes................................................ 2,816 2,665
----------- -----------
Net income............................................................. $ 5,870 $ 5,106
=========== ===========
Earnings per common share.............................................. $1.35 $1.18
Earnings per common - share assuming dilution.......................... $1.28 $1.12
Cash dividends declared................................................ $0.45 $0.345
Weighted-average shares outstanding.................................... 4,355,908 4,335,243
Dilutive potential common shares....................................... 217,251 228,051
----------- -----------
Adjusted weighted-average shares....................................... 4,573,159 4,563,294
The accompanying notes are an integral part of the consolidated financial statements.
* Except for share and per share data.
** Reclassified for comparative purposes.
</TABLE>
Page 1
<PAGE>
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
September
1999 1998**
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans.............................................. $ 6,600 $ 5,950
Interest on federal funds sold.......................................... 51 134
Interest on interest bearing deposits with banks........................ 1 0
Interest and dividends on investment securities:
U.S. Treasury securities....................................... 30 180
U.S. Government Agency securities.............................. 295 227
Obligations of states and political subdivisions............... 46 60
Dividend income................................................ 23 18
----------- -----------
Total interest income............................................................ 7,046 6,569
Interest expense on deposits..................................................... 1,467 1,507
----------- -----------
Net interest income.............................................................. 5,579 5,062
Loan loss provision.............................................................. 62 37
----------- -----------
Net interest income after loan loss provision.................................... 5,517 5,025
----------- -----------
Other income:
Fees for trust services................................................. 2,425 2,355
Service charges on deposits............................................. 292 295
Other service charges, commissions and fees............................. 263 255
Net gain on sale of loans............................................... 227 492
Net gain on sale of other real estate owned............................. 39 29
Other operating income.................................................. 1,218 425
----------- -----------
Total other income............................................................... 4,464 3,851
----------- -----------
Other expenses:
Salaries and wages...................................................... 3,931 3,134
Employee benefits....................................................... 564 529
Occupancy and bank premises............................................. 495 361
Furniture, fixtures, and equipment...................................... 490 461
Other operating expenses................................................ 1,549 1,734
----------- -----------
Total other expenses............................................................. 7,029 6,219
----------- -----------
Income before income taxes....................................................... 2,952 2,657
Applicable income taxes.......................................................... 926 925
----------- -----------
Net income....................................................................... $ 2,026 $ 1,732
=========== ==========
Earnings per common share........................................................ $0.47 $0.40
Earnings per common share - assuming dilution.................................... $0.45 $0.38
Cash dividends declared.......................................................... $0.15 $0.115
Weighted-average shares outstanding.............................................. 4,337,901 4,320,191
Dilutive potential common shares................................................. 208,056 234,623
----------- -----------
Adjusted weighted-average shares................................................. 4,545,957 4,554,814
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
** Reclassified for comparative purposes.
Page 2
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
(Unaudited) (Unaudited)
-------------- ----------- -----------
<S> <C> <C> <C>
Assets
Cash and due from banks.......................................... $ 19,391 $ 19,810 $ 18,771
Interest bearing deposits with banks............................. 132 5,150 104
Federal funds sold............................................... 9,874 20,372 10,000
Investment securities available for sale, at market (amortized
cost of $28,991, $50,824 and $29,363 as of September 30, 1999,
December 31, 1998 and September 30, 1998, respectively)........ 28,610 50,976 29,599
Loans:
Consumer....................................................... 71,323 68,078 70,612
Commercial..................................................... 114,333 89,368 92,159
Real estate.................................................... 142,497 123,739 121,676
-------------- ----------- -----------
Total loans.................................................. 328,153 281,185 284,447
Less: Allowance for possible loan losses....................... (4,396) (4,100) (4,103)
-------------- ----------- -----------
Net loans.................................................... 323,757 277,085 280,344
-------------- ----------- -----------
Premises and equipment, net...................................... 12,035 12,209 12,291
Accrued interest receivable...................................... 2,204 2,069 2,032
Goodwill (net)................................................... 3,340 0 0
Other real estate owned.......................................... 0 271 0
Other assets..................................................... 6,105 3,898 2,381
-------------- ----------- -----------
Total assets................................................. $ 405,448 $ 391,840 $ 355,522
============== =========== ===========
Liabilities
Deposits:
Demand, noninterest-bearing.................................... $ 89,557 $ 88,937 $ 84,510
Savings........................................................ 175,702 189,695 160,906
Time........................................................... 70,861 63,725 63,191
-------------- ----------- -----------
Total deposits............................................... 336,120 342,357 308,607
-------------- ----------- -----------
Borrowed funds................................................... 15,000 0 0
Other liabilities................................................ 8,541 7,262 5,614
-------------- ----------- -----------
Total liabilities............................................ 359,661 349,619 314,221
-------------- ----------- -----------
Shareholders' equity
Common stock, par value $1; authorized 25,000,000
shares; issued 5,166,457, 5,067,078 and 5,050,678 shares
as of September 30, 1999, December 31, 1998 and September 30, 1998,
respectively and outstanding of 4,334,099, 4,303,818 and
4,304,318 shares as of September 30, 1999, December 31, 1998
and September 30, 1998, respectively .......................... 5,166 5,067 5,050
Paid-in capital in excess of par value ......................... 4,251 2,478 2,312
Unrealized investment (depreciation)
appreciation net of deferred income taxes...................... (252) 100 155
Retained earnings................................................ 43,708 39,791 38,556
-------------- ----------- -----------
52,873 47,436 46,073
Less: Common stock in treasury at cost -- 832,358, 763,260 and
746,360 shares as of September 30, 1999, December 31, 1998
and September 30, 1998, respectively........................... (7,086) (5,215) (4,772)
-------------- ----------- -----------
Total shareholders' equity..................................... 45,787 42,221 41,301
-------------- ----------- -----------
Total liabilities and shareholders' equity..................... $ 405,448 $ 391,840 $ 355,522
============== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
Page 3
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998*
--------- ---------
<S> <C> <C>
Operating activities:
Net income............................................................. $ 5,870 $ 5,106
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Provision for loan losses........................................... 187 87
Depreciation and amortization....................................... 949 1,133
Provision for writedown of other real estate owned.................. 0 25
Gain on sale of other real estate owned............................. (45) (224)
Loans originated for resale......................................... (61,425) (103,432)
Proceeds from loans sold............................................ 61,809 104,933
Gain on sale of loans............................................... (857) (564)
(Decrease) increase in deferred income taxes........................ (150) 92
(Decrease) increase in interest receivable.......................... (135) 7
(Decrease) Increase in interest payable............................. (136) 153
Other.............................................................. 469 (1,080)
--------- ---------
Net cash provided by operating activities....................... 6,536 6,236
--------- ---------
Investing activities:
Purchases of investment securities..................................... (41,025) (11,002)
Proceeds from maturity and calls of fixed income securities............ 62,975 22,176
Loan (originations) repayments, net ................................... (18,706) 3,603
Loans purchased (dealer loans)......................................... (27,680) (20,487)
Purchases of premises and equipment.................................... (900) (1,456)
Proceeds from disposition of other real estate owned................... 45 224
Capitalization of costs of other real estate owned..................... (41) 0
Cost of acquiring new subsidiaries..................................... (2,195) 0
--------- ---------
Net cash used by investing activities............................ (27,527) (6,942)
--------- ---------
Financing activities:
Net decrease in demand and savings deposits............................ (13,373) (21,511)
Net increase in time deposits.......................................... 7,136 1,312
Dividends paid......................................................... (1,953) (1,496)
Repayment of mortgage debt............................................. (21) (20)
Purchases of treasury stock............................................ (1,929) (2,074)
Proceeds from borrowed funds........................................... 15,000 0
Proceeds from issuance of common stock................................. 196 188
--------- ---------
Net cash provided (used) by financing activities................. 5,056 (23,601)
--------- ---------
Decrease in cash and cash equivalents.................................. (15,935) (24,307)
Cash and cash equivalents at beginning of period....................... 45,332 53,182
--------- ---------
Cash and cash equivalents at end of period............................. $ 29,397 $ 28,875
========= =========
Supplemental cash flow information:
Income taxes paid................................................... $ 2,300 $ 2,748
Interest paid....................................................... $ 4,283 $ 4,396
The accompanying notes are an integral part of the consolidated financial
statements.
*-Reclassified for comparative purposes.
</TABLE>
Page 4
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income....................................... $2,026 $1,732 $5,870 $5,106
Other comprehensive income:
Unrealized holding (losses) gains on
available-for-sale securities.......... (62) 155 (533) 143
Deferred income tax (benefit) expense on
unrealized holding (losses) gains on
available for sale securities......... 21 (54) 181 (50)
--------- --------- --------- ---------
Comprehensive net income......................... $1,985 $1,833 $5,518 $5,199
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
Page 5
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of September 30, 1999 and 1998, the consolidated statements of
cash flows for the nine month periods ended September 30, 1999 and 1998, the
related consolidated statements of income for the three and nine month periods
ended September 30, 1999 and 1998 and the related consolidated statements of
comprehensive income for the three and nine month periods ended September 30,
1999 and 1998 are unaudited.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of related revenue and expense during the
reporting period. Actual results could differ from those estimates. Management
believes that all adjustments, accruals and elimination entries necessary for
the fair presentation of the consolidated financial position and results of
operations for the interim periods presented have been made. All such
adjustments were of a normal recurring nature. The year-end balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The financial
statements should be read in conjunction with the Notes to Consolidated
Financial Statements contained in the Corporation's 1998 Annual Report
incorporated in the 1998 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #10, Stock Option Plan (the "Plan"), in the Notes
to Consolidated Financial Statements in the Corporation's 1998 Annual Report,
incorporated in the 1998 Form 10-K (Exhibit #13). Shares under option under the
Plan had a dilutive impact on net income per share for the three and nine month
periods ended September 30, 1999 and 1998.
3. Adoption of Financial Accounting Standards:
In June 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") was issued. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. Comprehensive income includes net income
and several other items that current accounting standards require to be
recognized outside of net income, such as unrealized holding gains and losses on
available-for-sale investment securities in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Corporation adopted SFAS No. 130 on
January 1, 1998. When first applying SFAS No. 130, financial statements for
earlier periods that are provided for comparative purposes are required to be
restated to reflect application of the provisions of SFAS No. 130. SFAS No. 130
must be adopted at the beginning of an enterprises fiscal year.
Page 6
<PAGE>
In June 1997, Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") was issued. SFAS No. 131 replaces Statement of Financial Accounting
Standard No. 14, "Financial Reporting for Segments of a Business Enterprise".
SFAS No. 131 requires public business enterprises to report certain information
about their operating segments in a complete set of financial statements to
shareholders. Such financial information is required to be reported on the
basis that it is used internally by the enterprise's chief operating decision
maker in making decisions related to resource allocation and segment
performance. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Corporation adopted SFAS No. 131 on
January 1, 1998. Comparative year information is required to be restated in
accordance with SFAS No. 131, if practicable.
4. 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. Non-performing consumer loans and the respective
accrued interest income are periodiaclly charged off, if deemed uncollectable.
The charge-off policy for all loans considers such factors as the type and size
of the loan, the quality of the collateral, and historical creditworthiness of
the borrower and management's assessment of the collectability of such loans.
As a part of its internal loan review process, management, when considering
classifying a loan as an impaired loan, considers a number of factors, such as a
borrower's financial strength, the value of related collateral and the ability
to continue to meet the original contractual terms of a loan. Major risk
classifications, used to aggregate loans include both credit and the risk of
failure to repay a loan and concentration risk. A loan is not considered
impaired if there is merely an insignificant delay or shortfall in the amounts
of payments. An insignificant delay or shortfall is a temporary delay in the
payment process of a loan. However, under these circumstances, the
Corporation's principal subsidiary, The Bryn Mawr Trust Company (the "Bank"),
expects to collect all amounts due, including interest accrued at the
contractual interest rate for the period of the delay.
When a borrower is deemed to be unable to meet the original terms of a
loan, the loan is considered impaired. While all impaired loans are not
necessarily considered non-performing loans, if a loan is delinquent for 90 days
or more, it is considered both a nonperforming and impaired loan.
When a loan is classified as impaired, it is put on a nonaccrual status and
any income subsequently collected is credited to the outstanding principal
balance. Therefore, no interest income was reported on outstanding loans while
considered impaired during either nine month period ended September 30, 1999 or
1998. 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
nine months, in accordance with the contractual terms of interest and principal.
Previously unrecognized interest income is recorded as interest income
immediately. Future interest income is recorded based on the existing terms of
the loan. Based on the above criteria, $1,283,000 of loans considered impaired
were removed from the impaired loan status during
Page 7
<PAGE>
the first nine months of 1999 and $395,000 of interest income was recognized as
interest income in the second quarter of 1999. No loans considered impaired
were removed from impaired loan status during 1998.
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. Periodiaclly, consumer loan balances and respective interest income
amounts, when deemed uncollectable, are charged off against the loan loss
reserve.
All of the Corporation's impaired loans, which amounted to $756,000,
$1,718,000 and $2,951,000 at September 30, 1999, December 31, 1998 and September
30, 1998, respectively, were put on a nonaccrual status and any outstanding
accrued interest receivable on such loans at the time they were put on
nonaccrual status, was reversed from income.
Impaired loans are required to be measured based upon the present value of
expected future cash flows, discounted at the loan's initial effective interest
rate or at the loan's market price or fair value of the collateral, if the loan
is collateral dependent. As of September 30, 1999, December 31, 1998 and
September 30, 1998, no impaired loans were measured using the present value of
expected future cash flows or the loan's market price because all impaired loans
were collateral dependent at these respective dates. Impaired loans measured by
the value of the loan's collateral amounted to $756,000, $1,718,000, and
$2,951,000, respectively.
If the loan valuation is less than the recorded value of the loan, an
impairment reserve must be established for the difference. All impairment
reserves established in either 1999 or 1998 were allocated from the existing
reserve for loan losses. As of September 30, 1999, December 31, 1998 and
September 30, 1998, there were $646,000, $935,000 and $2,881,000, respectively
of impaired loans for which there is a related allowance for loan losses. The
total related allowance for loan loss at September 30, 1999, December 31, 1998
and September 30, 1998 was $78,000, $300,000 and $300,000, respectively.
Impaired loans for which no loan loss allowance was allocated amounted to
$110,000, $783,000 and $70,000 at September 30, 1999, December 31, 1998 and
September 30, 1998, respectively. Average impaired loans as of September 30,
1999, December 31, 1998 and September 30, 1998 amounted to $1,204,000,
$2,820,000 and $3,095,000, respectively.
Page 8
<PAGE>
5. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
nine months ended year ended
September 30, December 31,
1999 1998 1998
--------------------- ------------
Balance, Beginning of period $ 4,100 $ 4,074 $ 4,074
--------- -------- ------------
Charge-offs:
Consumer (93) (129) (179)
Commercial and industrial 0 (18) (64)
Real estate (54) (24) (0)
Total charge-offs (147) (171) (243)
Recoveries:
Consumer 6 15 19
Commercial and industrial 228 0 100
Real estate 22 98 0
Total recoveries 256 113 119
Net (charge-offs) / recoveries 109 (58) (124)
Provision for loan losses 187 87 150
--------- -------- ------------
Balance, End of period $ 4,396 $ 4,103 $ 4,100
--------- -------- ------------
6. Acquisition of New Subsidiaries:
During the first quarter of 1999, the Corporation acquired CDC Capital
Management, Inc. ("CDC") and Joseph W. Roskos & Co. ("JWR & Co."). CDC is an
investment advisory firm, providing services to its client base regarding
alternative investment managers. JWR & Co. is a firm that provides family
office business services, including accounting, consulting, tax services and
fiduciary support for high-net-worth individuals. CDC was acquired for $281,000
in Corporation stock, to be paid out over a two year period. The purchase
method of accounting was used for this acquisition and the transaction added
$177,000 of goodwill to the Corporations books. JWR & Co. was acquired for
$4,195,000, of which $2,000,000 was paid in Corporation stock and $2,195,000 was
paid in cash. The purchase method of accounting was used for this acquisition
and the transaction added $3,300,000 in goodwill to the Corporation's books.
The amortization period for goodwill is 10 years for CDC and 20 years for JWR &
Co.. Goodwill expense for the first nine months of 1999 amounted to $137,000.
Page 9
<PAGE>
7. Segment Information:
The Corporation's principal operating segments are structured around the
finanical services provided its customers. The Banking segment gathers deposits
and makes funds available for loans to its customers. The Bank's Investment
Management and Trust segment ("Trust") provides both corporate and individual
investment management and trust products and services. The Bank's Mortgage
Banking segment originates and sells residential mortgage loans to the secondary
mortgage market. Bryn Mawr Bank Corporation and all other subsidiaries are
aggregated under the "All Other" heading.
Segment information for the nine months ended September 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1999
Mortgage All
Banking Trust Banking Other Consolidated
----------------------------------------------------------------------
Net interest income $16,728 $ -- $ -- 2 $16,728
Less Loan loss provision 187 -- -- -- 187
----------------------------------------------------------------------
Net interest inocme after
loan loss provision 16,541 -- -- 2 16,541
Other income:
Fees for investment
management and trust
services -- 7,465 -- -- 7,465
Other income 2,186 -- 1,379 3,352 6,917
----------------------------------------------------------------------
Total other income 2,186 7,465 1,379 3,352 14,382
Other expenses:
Salaries and benefits 8,145 2,815 477 1,700 13,137
Occupancy 2,259 362 109 339 3,069
Other operating expense 3,791 705 226 1,309 6,031
----------------------------------------------------------------------
Total other expense 14,195 3,882 812 3,348 22,237
----------------------------------------------------------------------
Segment profit (loss) 4,532 3,583 567 6 8,686
Intersegment (revenues)
expenses * 127 177 -- (304) 0
----------------------------------------------------------------------
Segment profit after
eliminations $4,659 $3,760 $567 ($298) $8,686
=====================================================================
% of segment profit (loss) 53% 43% 7% -3% 100%
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Mortgage All
Banking Trust Banking Other Consolidated
----------------------------------------------------------------------
Net interest income $14,914 $ -- $ -- 2 $14,914
Less Loan loss provision 87 -- -- -- 87
----------------------------------------------------------------------
Net interest inocme after
loan loss provision 14,827 -- -- 2 14,827
Other income:
Fees for investment
management and trust
services -- 6,893 -- -- 6,893
Other income 2,006 -- 1,733 742 4,481
----------------------------------------------------------------------
Total other income 2,006 6,893 1,733 742 11,374
Other expenses:
Salaries and benefits 7,090 2,808 389 573 10,860
Occupancy 2,016 299 41 138 2,494
Other operating expense 3,676 686 285 429 5,076
----------------------------------------------------------------------
Total other expense 12,782 3,793 715 1,140 18,430
----------------------------------------------------------------------
Segment profit (loss) 4,051 3,100 1,018 (396) 7,771
Intersegment (revenues)
expenses * 1 177 -- (178) 0
----------------------------------------------------------------------
Segment profit after
eliminations $4,052 $3,277 $1,018 ($574) $7,771
======================================================================
% of segment profit (loss) 52% 42% 13% -7% 100%
----------------------------------------------------------------------
</TABLE>
*- Intersegment revenues consist of rental payments to Bryn Mawr Bank
Corporation from its subsidiaries, and insurance commissions paid by the
Bank to Insurance Counsellors of Bryn Mawr, Inc. Intersegment expenses
consist of a $4,000 management fee, paid by Bryn Mawr Bank Corporation to
the Bank.
Page 10
<PAGE>
ITEM 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated results of operations of
Bryn Mawr Bank Corporation and its subsidiaries (the "Corporation") for the
three and nine months ended September 30, 1999 and 1998, as well as the
financial condition of the Corporation as of September 30, 1999, December 31,
1998 and September 30, 1998. The Bryn Mawr Trust Company (the "Bank") The Bryn
Mawr Trust Company (Jersey), Ltd. ("Jersey")and Tax Counsellors of Bryn Mawr,
Inc. ("TCBM") are wholly-owned subsidiaries of the Corporation. Insurance
Counsellors of Bryn Mawr, Inc. ("ICBM") is a wholly-owned subsidiary of the
Bank. In December of 1998, the Corporation formed a wholly-owned subsidiary,
Bryn Mawr Brokerage Company, Inc. ("BM Brokerage") to offer securities products
to its customers through the Bank's branch system. The Corporation acquired two
new subsidiaries during the first quarter of 1999, CDC Capital Management, Inc.
("CDC") and Joseph W. Roskos & Co. ("JWR & Co."). CDC is an investment advisory
firm, providing services to its client base regarding alternative investment
managers. JWR & Co. is a firm that provides family office business services,
including accounting, consulting, tax services and fiduciary support for high-
net-worth individuals.
RESULTS OF OPERATIONS
- ---------------------
The Corporation reported net income of $5,870,000 for the nine months ended
September 30, 1999, a 15% increase over $5,106,000 reported for the same period
in 1998. Non-recurring income, resulting either from recoveries or interest
income from prior problem loans, was included in net income for the first nine
months of both 1998 and 1999. Exclusive of this non-recurring income, net
income increased 11% for the first nine months of 1999, compared to the same
period in 1998. Earnings per common share amounted to $1.35, a 14% increase
over $1.18 reported for the first nine months of 1998. Earnings per common
share, assuming dilution were $1.28 and $1.12, respectively.
For the third quarter of 1999, the Corporation reported net income of
$2,026,000, a 17% increase over $1,732,000, reported for the third quarter of
1998. For the three months ended September 30, 1999 and 1998, earnings per
common share amounted to $.47 and $.40, respectively.
The increase in earnings, for the first nine months of 1999 over the same
period in 1998 may be attributed to a number of factors, including an increase
in net interest income, up 12% over the first nine months of 1998 and an
increase of 26% in other income, primarily due to growth in new revenue streams
provided by the acquisition or start-up of the new subsidiaries referred to
previously. Total other expenses rose 20% for the first nine months of 1999
compared to the same period in 1998.
Average outstanding earning assets grew by 9%. Average outstanding loan
balances for the first nine months of 1999 grew 11% from average daily
outstanding loan balances for the first nine months of 1998, while average
outstanding investment security balances decreased by 4%. The increase in
average outstanding earning assets was partially funded by a 9% increase in
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average daily outstanding deposit balances. The majority of the growth in
average daily outstanding deposits occurred in transaction based accounts.
Average daily outstanding balances of non-interest bearing demand deposit
accounts and NOW accounts were both up 12%.
Since, in the short term, 30 days or less, the Bank is asset rate sensitive,
a decreasing prime rate usually will cause a related decrease in the respective
yields on earning assets. The overall annualized yield on earning assets
decreased by 10 basis points, from 7.9% at September 30, 1998 to 7.8% for the
same period in 1999.
With the majority of the growth in average outstanding deposits occurring
in no cost or low costing deposits during the first nine months of 1999, the
average cost of funds decreased from 1.95% for the first nine months of 1998 to
1.62% for the same period in 1999. The result was an increase in the Bank's
annualized net interest margin, to 6.19% for the first nine months of 1999
compared to 6.03% for the same period in 1998. While interest rate movements
and their effect on future revenue streams cannot be predicted, management
believes that there are presently no known trends, events or uncertainties that
will have or are reasonably likely to have a material effect on the
Corporation's liquidity, capital resources or results of operations in the
future.
NET INTEREST INCOME
- -------------------
For the nine months ended September 30, 1999, net interest income rose 12%
to $16,728,000 from $14,914,000 in 1998. Total interest income grew 7% for the
first nine months of 1999, to $20,875,000 from $19,463,000 for the first nine
months of 1998. Interest expense decreased 9% for the nine months ended
September 30, 1999, to $4,147,000 compared to $4,549,000 for the first nine
months of 1998. The yield on earning assets for the first nine months of 1999
was 7.8% compared to 7.9% for the first nine months of 1998 while the effective
rate paid on interest bearing deposits for the first nine months of 1999 and
1998 was 2.2% and 2.6%, respectively.
Interest and fees on loans increased 10% from $17,260,000 for the first
nine months of 1998 to $18,934,000 for the first nine months of 1999. An 11%
increase in average outstanding loan balances for the first nine months of 1999,
to $303,117,000, compared to $273,170,000 for the same period in 1998 is the
primary reason for this increase in loan related interest and fee income.
Interest income on investments decreased $136,000 or 8%, from $1,681,000
for the first nine months of 1998 to $1,545,000 for the first nine months of
1999. Interest from U.S. Treasury obligations decreased 66% from $552,000 for
the first nine months of 1998 to $187,000 for the first nine months of 1999.
The primary reason for this decrease was a $8,253,000 or 65% decrease in the
average balance of U.S. Treasury securities, from $12,715,000 during the first
nine months of 1998 to $4,462,000 for the comparable period in 1999. The
decrease in U.S. Treasury obligations was a result of maturities, not sales of
U.S. Treasury obligations. Interest income on U.S. Government Agency securities
increased 25% from $857,000 for the nine months ended September 30, 1998 to
$1,071,000 at September 30, 1999. A 39% increase in the average balance of U.S.
Government Agency securities, from $18,681,000 for the nine months ended
September 30, 1998 to $25,915,000 for the same period in 1999, is
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<PAGE>
primarily responsible for the related 25% increase in interest income. Interest
income on obligations of states and political subdivisions decreased 13% or
$23,000, from $171,000 for the nine months ended September 30, 1998 to $148,000
for the same period in 1999. Average outstanding balances of obligations of
state and political subdivision decreased by 11%, from $5,010,000 in 1998 to
$4,453,000 in 1999. The overall yield on investment securities decreased from
5.8% for the first nine months of 1998 to 5.4% for the first nine months of
1999, a result of lower rates of interest being paid on investments purchased
during the prior twelve month period.
Interest on federal funds sold decreased 24% from $522,000 the first nine
months of 1998, compared to $396,000 for the same period in 1999. Average
outstanding balances of federal funds sold decreased 13%, from $12,639,000 for
the first nine months of 1998 to $10,997,000 for the same period in 1999. The
yield on federal funds sold decreased to 4.8% for the first nine months of 1999,
compared to 5.5% for the same period last year.
Interest expense on deposits decreased 9% or $402,000, to $4,147,000 for
the nine months ended September 30, 1999 compared to $4,549,000 for the same
period in 1998. The average cost of interest bearing deposits decreased 40
basis points, from 2.6% at September 30, 1998 to 2.2% for the nine months ended
September 30, 1999. The average daily outstanding interest bearing deposit
balances increased 7% to $245,386,000 at September 30, 1999 compared to
$228,620,000 for the same period in 1998. Average daily outstanding non-
transaction savings accounts remained level for the first nine months of 1999,
compared to the same period in 1998, while average daily outstanding Market Rate
Accounts and CDs increased 14% and 1%, respectively. The Bank's average daily
outstanding transaction based NOW account and non-interest bearing demand
deposit account balances both increased 12%. The annualized cost of CDs
decreased 40 basis points, from 5.0% for the first nine months of 1998 to 4.6%
for the same period in 1999. The average cost of Market Rate Accounts and
savings accounts decreased by 40 basis points and 50 basis points, respectively,
while the cost of NOW accounts decreased by 30 basis points. The average cost
of deposits, including non-interest bearing demand deposits decreased from 1.95%
for 1998, to 1.62% for the first nine months of 1999.
For the first nine months of 1999, the net interest margin increased to
6.19% from 6.03% for same period in 1998. The net interest margin is computed
exclusive of related loan fee income.
For the third quarter of 1999, net interest income of $5,579,000 was 10%
ahead of $5,062,000, reported for the third quarter of 1998. Total interest
income increased $477,000 or 7% from $6,569,000 for the third quarter of 1998 to
$7,046,000 for the same period in 1999. Interest and fees on loans increased
$650,000 or 11% for the third quarter of 1999 over the third quarter of 1998.
Interest on federal funds sold decreased $83,000 or 62%. Interest income on
U.S. Government Agency Obligations increased $68,000 or 30%, due to an increase
in average daily outstanding balances in such investments. Interest income on
U.S. Treasury Securities decreased by $150,000 or 83%, due primarily to a
decrease in the average outstanding balances of such investments. Interest
income on obligations of states and political subdivisions decreased by $14,000
or 23%. Interest expense on deposits decreased $40,000 or 3%.
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LOAN LOSS PROVISION
- -------------------
The loan loss provision represents management's determination of the amount
necessary to be charged against the current year's income in order to maintain
an adequate loan loss reserve. The methodology used to arrive at an appropriate
allowance for loan loss involves a high degree of management judgement and
results in a range of estimated losses. It is the goal of this loan loss
reserve adequacy process to provide a loan loss reserve sufficient to address
the Bank's potential risk of loan losses during various economic cycles. The
balance in the allowance for loan losses reflects management's best estimate of
probable loan losses related to specifically identified loans as well as loan
losses in the existing loan portfolio. As a part of the determination of
management's best estimate of the level of the loan loss reserve, management
considers such available information as loan concentrations, past charge-off
history, collateralization of loans and the underlying value of collateral and
any current economic trends that might have an effect on the loan portfolio. In
addition, the credit quality of a loan may be affected by the failure of a
borrower's operating systems, as a consequence of a Year 2000 ("Y2K") issue. As
a part of the consideration of the adequacy of the loan loss reserve, management
also considers any potential Y2K losses, as they relate to the existing loan
portfolio.
The Bank maintains an Officer Loan Review Committee (the "Committee") and
retains the services of an independent loan review consultant (the
"Consultant"). The Consultant performs an independent review of the Bank's loan
portfolio and the loan loss reserve. The Committee meets monthly to review the
adequacy of the loan loss reserve as well as all nonaccrual loans, any potential
problem loans and loans criticized by either the Bank's regulators or the
Consultant.
For the nine months ended September 30, 1999, the loan loss provision was
increased to $187,000, compared to $87,000 for the same period in 1998. The
loan loss reserve amounted to 1.34% of outstanding loans at September 30, 1999,
down from 1.44% as of September 30, 1998. Delinquencies, as a percentage of
outstanding loans, were 60 basis points as of September 30, 1999. Nonperforming
loans increased 60% to $791,000 as of September 30, 1999, up from $493,000 as of
December 31, 1998 and decreased 18% from $970,000 in nonperforming loans as of
September 30, 1998. Based on the results of both the internal and external loan
review processes, management believes the loan loss reserve to be adequate as of
September 30, 1999.
OTHER INCOME
- ------------
Total other income of $14,051,000 for the nine months ended September 30,
1999 increased 26% over $11,188,000 reported for the same period in 1998.
Included in each period were net gains on the sale of OREO. Exclusive of these
gains and after intercompany eliminations, total other income increased by
$3,042,000 or 28% over 1998 levels. Of this increase, $2,481,000 was earned by
subsidiaries other than the Bank, many of which were not in operation during
1998. Exclusive of the OREO gains referred to above, the Bank's other income
increased by $561,000 or 5%.
Fees for trust services rose 8% from $6,893,000 for the first nine months
of 1998 to $7,465,000 for the same period in 1999, due primarily to both the
acquisition of new Trust accounts and an increase in the market value of Trust
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<PAGE>
assets under management, up by 3%, to $1,896,333,000 at September 30, 1999 from
$1,835,826,000 as of September 30, 1998.
Rising rates of interest on residential mortgage loans, during the first
nine months of 1999, compared to the same period in 1998 was primarily
responsible for a decrease in refinance activity in residential mortgage loans.
For the nine month period ended September 30, 1999, the Bank originated and sold
$61,809,000 of residential mortgage loans in the secondary mortgage market, a
41% decrease from $104,933,000 of residential mortgage loans originated and sold
during the first nine months of 1998. A combination of deferred loan fees and
documentation preparation fees, earned as income resulting from the sale of
residential mortgage loans in the secondary mortgage market and related gains on
the same respective sales of residential mortgage loans in the secondary
mortgage market amounted to $857,000 or 139 basis points for the first nine
months of 1999 compared to $1,251,000 or 120 basis points for the same period in
1998.
Income from other service charges, commissions and fees amounted to
$749,000 for the first nine months of 1999, a 6% increase from $706,000 reported
for the same period in 1998. There was a $45,000 recovery related to prior OREO
sales reported for the first nine months of 1999, compared to gains on the
disposition of OREO of $224,000 for the same period in 1998.
Other operating income increased by $2,811,000 or 225% to $4,062,000 for
the first nine months of 1999, compared to $1,251,000 for the same period in
1998. Of this $2,811,000 growth, increased fee income of $2,488,000 was
reported from subsidiaries of the Corporation, other than the Bank, three of
which, CDC, JWR & Co. and BM Brokerage, were not in operation during 1998. Non-
banking subsidiaries earned $564,000 in other income for the first nine months
of 1998, compared to $3,053,000 for the same period in 1999.
Total other income increased $613,000 or 16% from $3,851,000 for the third
quarter of 1998 to $4,464,000 for the third quarter of 1999. Trust fees
increased 3% or $70,000, from $2,355,000 for the third quarter of 1998 to
$2,425,000 for the same period in 1999. Net gains on the sale of loans,
directly related to the decreased volume of residential loan sales in the
secondary market, were down 54%. Net gains on sale of loans decreased by
$265,000 to $227,000 for the third quarter of 1999 from $492,000 for the third
quarter of 1998. Other operating income increased by $793,000 or 187%, from
$425,000 for the third quarter of 1998 to $1,218,000 for the third quarter
1999. The non-banking subsidiaries accounted for $778,000 of this $793,000
increase.
OTHER EXPENSES
- --------------
Total other expense increased $3,662,000 or 20% for the first nine months
of 1999 to $21,906,000 from $18,244,000 for the first nine months of 1998. Of
this increase $2,165,000 related to expenses incurred by the non-banking
subsidiaries and the Corporation and the balance related to a 9% increase in the
Bank's total other expense. Each other expense category, discussed below,
reflects the effect of increased expenses related to these non-banking
subsidiaries.
Salaries and wages grew $1,996,000 or 22%, from $9,266,000 for the nine
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months ended September 30, 1998 to $11,262,000 for the same period in 1999. Of
this increase, $1,799,000 relates to regular salary expense, representing a 24%
increase in regular, part time and overtime salaries during the first nine
months of 1999, compared to 1998. Included in 1999's regular salary expense
increase were increased salaries for the non-banking subsidiaries of $989,000
over 1998's regular salary expense. The Bank's regular salary expense increased
11% for the first nine months of 1999, compared to the same period in 1998.
Staffing additions, occurring during the previous twelve month period were
primarily responsible for this increase. Incentive salaries, tied to overall
corporate profitability, increased $197,000 or 11%, from $1,774,000 for the nine
months ended September 30, 1998 to $1,971,000 for the same period in 1999.
Employee benefits expenses increased $262,000 or 16% from $1,594,000 for
the first nine months of 1998 to $1,856,000 for the same period in 1999. The
Bank's employee benefits expense increased $208,000 or 13%, comparable to the
overall growth in regular salary expense. The remainder of the increase was due
to the additional fringe benefits expenses associated with the non-banking
subsidiaries.
Occupancy expense increased $379,000 or 37%, from $1,026,000 for the first
nine months of 1998 to $1,405,000 for the first nine months of 1999. The
majority of this increase, $257,000, occurred in the Bank. Bank occupancy
expense increased by 24%. Included in this increase was the cost of maintaining
buildings, located at #2 and #6 Bryn Mawr Avenue (the "Buildings"). The
Buildings are located directly across Lancaster Avenue from the Bank's main
office and were leased during the first quarter of 1999 by the Bank, to be used
for future expansion. Occupancy expenses directly related to the Buildings
amounted to $198,000 for the first nine months of 1999 and represent the
majority of the $257,000 increase in occupancy expenses for the Bank from period
to period. Rental income of $175,000 from existing tenants in the Buildings,
included in other income during the first nine months of 1999, offset all but
$23,000 of this additional occupancy expense.
Furniture, fixtures and equipment expense increased $171,000 or 13% from
$1,287,000 for the first nine months of 1998 to $1,458,000 for the same period
in 1999. The Bank's furniture, fixtures and equipment expense increased by
$117,000 or 9%. The largest increase occurred in depreciation, up $98,000.
Other operating expenses increased $854,000 or 17%, from $5,071,000 for the
first nine months of 1998 to $5,925,000 for the first nine months of 1999.
Included in other operating expense for both years were non-recurring
recoveries, related to a prior disputed loan, which reduced other operating
expenses. Exclusive of these non-recurring recoveries, other operating expense
increased by $988,000 or 19%. Of this $988,000 increase, $881,000 related to
the non-banking subsidiaries and the Corporation, while the Bank's expense
increased by $107,000 or 2%.
For the quarter, total other expenses increased 13% or $810,000 to
$7,029,000 for the quarter ended September 30, 1999 from $6,219,000 for the same
quarter in 1998. The largest increase occurred in salaries and wages, up
$797,000 or 25%. Of this increase, regular salaries, full time, part time and
overtime increased by $467,000 or 18%. Included in this increase were the
salaries for the non-banking subsidiaries, most of which were not in operation
during 1998. The increase in these salaries amounted to $326,000. Exclusive
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of these salary costs, the Bank's regular salary cost increased by $141,000 or
6% for the third quarter of 1999, compared to the third quarter of 1998.
Salaries - other increased by $330,000 or 67% for the quarter, reflecting
increased incentive expenses, related to increased profitability of the
Corporation. Employee benefits costs rose by 7% or $35,000 reflecting both the
effect of increased staff in the Bank, as well as staffing additions for the new
non-banking subsidiaries. Occupancy and bank premises expense increased by
$134,000 or 37%. The majority of this increase was due to costs associated with
the Buildings, which added $88,000 to occupancy expense for the third quarter of
1999. Other operating expenses decreased by $185,000 or 11%, from $1,734,000
for the third quarter of 1998 to $1,549,000 for the third quarter of 1999.
Exclusive of a third quarter 1999 non-recurring recovery of legal fees related
to a prior problem loan, other operating expenses increased $93,000 or 5%.
APPLICABLE INCOME TAXES
- -----------------------
The Corporation's effective tax rate, defined as income tax expense divided
by pre-tax income, for the first nine months of 1999 and 1998 was 32% and 34%,
respectively.
FINANCIAL CONDITION
- -------------------
Total assets increased 3% from $391,840,000 at December 31, 1998 to
$405,448,000 as of September 30, 1999. Total assets grew 14% from $355,522,000
as of September 30, 1998.
Outstanding earning assets increased 3% to $366,769,000 as of September 30,
1999 from $357,683,000 as of December 31, 1998. The Bank's loan portfolio
increased 17%, to $328,153,000 at September 30, 1999 from $281,185,000 as of
December 31, 1998. Outstanding loans increased by 15%, from $284,447,000 as of
September 30, 1998. Outstanding consumer loans of $71,323,000 at September 30,
1999 increased 5% from consumer loan outstanding balances of $68,078,000 as of
December 31, 1998 and increased 1% from $70,612,000 as of September 30, 1998.
An increase in home equity loan activity during the first nine months of 1999 is
the primary reason for the increase in consumer loan balances. Outstanding
commercial loans at September 30, 1999 were $114,333,000, a 28% increase from
outstanding commercial loan balances of $89,368,000 at December 31, 1998 and 24%
ahead of $92,159,000 at September 30, 1998. Outstanding real estate loans were
$142,497,000 at September 30, 1999, a 15% increase from $123,739,000 in
outstanding real estate loans at December 31, 1998 and a 17% increase over
$121,676,000 in outstanding real estate loans as of September 30, 1998. The
primary reason for the increase in outstanding real estate loans from December
31, 1998 to September 30, 1999 was an increase in commercial mortgage lending
activity.
The Bank's investment portfolio, having a market value of $28,610,000 at
September 30, 1999, decreased 44% from a market value of $50,976,000 at December
31, 1998 and decreased 3% from $29,599,000 as of September 30, 1998. The
decrease in the investment portfolio was used to partially fund growth in the
loan portfolio.
The Corporation has chosen to include all of its investment securities in
the available for sale category. Investments in this category are reported at
the current market value with net unrealized gains or losses, net of the
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deferred tax effect, being added or deducted from the Corporation's total equity
on the balance sheet. As of September 30, 1999, the investment portfolio had an
unrealized loss of $381,000, compared to an unrealized gain of $152,000 as of
December 31, 1998. The unrealized investment depreciation, net of deferred
income tax benefit, decreased the Corporation's shareholders' equity on the
balance sheet by $252,000 as of September 30, 1999.
Federal funds sold amounted to $9,874,000 as of September 30, 1999, a 52%
decrease from $20,372,000 as of December 31, 1998 and a 1% decrease from
$10,000,000 as of September 30, 1998. A large increase in deposits at year-end
1998 provided for a similar increase in federal funds sold. In an effort to
mitigate potential concentration risk in the sale of federal funds sold, the
Bank invested excess funds into its interest bearing account at the Federal Home
Loan Bank of Pittsburgh (the "FHLB"). As deposits decreased during the first
nine months of 1999, the balance of the FHLB account was also decreased. This
is the reason for a $5,018,000 decrease in interest bearing deposits with banks
from December 31, 1998 to September 30, 1999. The decrease in outstanding
federal funds sold from December 31, 1998 was primarily due to both an increase
in outstanding loans and a decrease in deposits during the first nine months of
1999. Management continues to monitor the liquidity requirements of the Bank
and believes that it has the ability to increase its liquidity position through
growth of new CDs, borrowing from the FHLB and the sale of investments,
classified as available for sale.
Nonperforming assets amounted to $791,000 at September 30, 1999, a 4%
increase from $764,000 at December 31, 1998 and a 18% decrease from
nonperforming assets of $970,000 at September 30, 1998. Nonperforming loans
increased 60% to $791,000 at September 30, 1999 compared to non-performing loans
of $493,000 at December 31, 1998 and decreased 18% from $970,000 as of September
30, 1998. During the third quarter of 1999, the Bank discovered that, through
no fault of the Bank, it had acquired an OREO property through an invalid
sheriff's sale. Therefore, this OREO property was then deducted from the OREO
classification and included in the non-performing loan classification. This is
the reason for the 60% increase in non-performing loans, over December 31, 1998
non-performing loan balances, while total non-performing assets increased by
only 4% during the same period. There was no OREO recorded on the Bank's or its
affiliates' books as of September 30, 1998.
As of September 30, 1999 and 1998, there were no significant loans
classified for regulatory purposes as loss, doubtful, substandard or special
mention that either (i) represent or result from trends or uncertainties which
management reasonably expects will impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information, causing management to have serious doubts as to the
borrower's ability to comply with the loan repayment terms.
Total deposits decreased 2% to $336,120,000 as of September 30, 1999 from
$342,357,000 as of December 31, 1998. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total average
outstanding deposit balances increased 9% to $338,147,000 for the nine month
period ended September 30, 1999 from $311,418,000 for the same period in 1998.
Average savings balances remained relatively level at $40,684,000 for the first
nine months of 1999, compared to $40,504,000 for the same period in
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1998. All other deposit categories had growth in average outstanding balances.
Average outstanding Market Rate Account balances increased 14% or $6,437,000
from $44,619,000 in average daily outstanding balances for the nine months ended
September 30, 1998 to $51,056,000 for the same period in 1999. Average
outstanding NOW account balances grew 12% or $9,747,000, from $82,655,000 for
the first nine months of 1998 to $92,402,000 for the same period in 1999. Non-
interest bearing demand deposit average outstanding balances grew 12% or
$9,963,000 from $82,798,000 for the nine months ended September 30, 1998 to
$92,761,000 for the same period in 1999. Average outstanding CD balances
increased 1% or $402,000 from $60,842,000 in average outstanding balances for
the first nine months of 1998 to $61,244,000 for the same period in 1999.
Acquisition of new deposits from customers of other banks, due to recent banking
mergers and consolidations, as well as new lending relationships, bringing new
deposit relationships, are the primary reasons for the growth in average
deposits from the first nine months of 1998 compared to the first nine months of
1999.
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
The Bank's liquidity is maintained by managing its core deposits,
purchasing federal funds, selling loans in the secondary market, and borrowing
from the FHLB. The Bank's liquid assets include cash and cash equivalents as
well as certain unpledged investment securities. Bank management has developed
a revised liquidity measure, incorporating its ability to borrow from the FHLB
to meet liquidity needs and goals. Periodically, the Asset / Liability
Committee of the Bank reviews the Bank's liquidity needs and reports its
findings to the Risk Management Committee of the Bank's Board of Directors.
In order to meet its current liquidity needs, in September 1999, the Bank
borrowed $15,000,000 from the FHLB for four months. This short term borrowing
will mature on January 2000.
In the short term, 30 days or less, the Bank is asset rate sensitive after
adjusting the interest rate sensitivity of savings deposits based on
management's experience and assumptions regarding the impact of product pricing,
interest rate spread relationships and customer behavior. Asset rate
sensitivity will result in a greater portion of assets compared to deposits
repricing with changes in interest rates within specified time periods. The
opposite effect results from being liability rate sensitive. Asset rate
sensitivity in the short term, in an increasing rate environment should produce
an increase in net interest income. The Bank uses simulation models to help
measure its interest rate risk and to help manage its interest rate sensitivity.
The simulation models consider not only the impact of changes in interest rates
on forecasted net interest income, but also such factors as yield curve
relationships, possible loan prepayments, and deposit withdrawals. As of
September 30, 1999, based on the results from the simulation models, the amount
of the Bank's interest rate risk was within the acceptable range as established
by the Bank's Asset/Liability Policy.
CAPITAL RESOURCES
- -----------------
Total consolidated shareholders equity of the Corporation was $45,787,000,
or 11.3% of total assets, as of September 30, 1999, compared to total
shareholders equity of $42,221,000, or 10.8% of total assets, as of
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December 31, 1998. As of September 30, 1998, shareholders' equity was
$41,301,000, or 11.6% of total assets. The Corporation's risk weighted Tier I
capital ratio was 11.91% as of September 30, 1999 compared to 13.55% and 13.33%
at December 31, 1998 and September 30, 1998, respectively. The respective Tier
II ratios were 13.13%, 14.80% and 14.58%, respectively. During the first nine
months of 1999, the Corporation declared its regular quarterly dividend,
cumulatively amounting to $0.45 per share, a 30% increase over $0.345 per share
declared during the first nine months of 1998.
In March 1999, the Corporation elected to continue a stock repurchase
program, originally established in March of 1997, with a goal of repurchasing up
to 5% of the outstanding stock of the Corporation, as of March 1, 1999. As of
September 30, 1999, the Corporation repurchased 234,300 shares of its stock at
an average cost of $24.22 per share.
YEAR 2000
- ---------
The Corporation began its process of assuring that all its software and
computer systems or any equipment with computer chips (collectively the
"Systems") and applications are Y2K compliant in November 1996. In 1997, a
comprehensive project plan (the "Plan") to address the Y2K problems and issues,
related to the Bank's and its affiliated operations, was developed and
implemented. The Bank, as the primary operating subsidiary of the Corporation
is addressing the Y2K problem and related issues for the Corporation and all of
its subsidiaries. The Plan includes five phases. They are as follows:
Awareness, Assessment, Renovation, Validation and Implementation, as defined by
the Federal Financial Institutions Examination Council and the banking
regulatory agencies which regulate the Corporation and it affiliates.
A project team, consisting of key members of the Bank's technology staff,
representatives of functional business units and senior management (the "Team")
was created. Additionally, the duties of the Senior Vice President and Chief
Technology Officer were realigned to serve primarily as the Y2K project manager.
The assessment of the impact of the Y2K issues on the Bank's Systems has been
completed. Based on the assessment, the Bank has identified and prioritized
those Systems deemed to be mission critical or those that have significant
impact on normal operations.
The Bank relies on third party vendors and service providers (the "Groups")
for its data processing capabilities and to maintain its computer systems.
Formal communications with those Groups were initiated in 1997 and presently
continue to date. Thus far responses to date indicate that most of the
significant providers in the Group currently have either compliant versions
available or will be complient prior to year-end 1999. Based on current
information related to the Group, management has determined that the Y2K issues
will not pose significant operational problems for the systems. However, the
Bank can give no guarantee that the systems of the Group on which the Bank's
systems rely will be timely renovated and Y2K compliant.
Additionally, the Bank has designed and completed implementation of a plan
to identify the potential risks posed by the impact of Y2K issues on both its
significant deposit customers and borrowing customers. Formal communications
have been initiated and findings are presented to the Board of Directors at each
quarterly Board of Directors' meeting. On those months that the Board of
Directors does not meet, an update of the Y2K initiative is
Page 20
<PAGE>
presented to the Board's Risk Management Committee.
In the fourth quarter of 1998, the Bank formed a Y2K Communications
Committee, consisting of Bank marketing officers and members of the Y2K Team.
This Committee is charged with educating and informing the Corporation's
employees, customers and community about the Y2K readiness of the Bank. Both
Bankwide employee training and several customer initiatives have taken place
during 1999.
The Team estimates that the Bank's Y2K readiness is 99% complete and that
the activities involved in assessing external risks and operational issues are
100% complete.
The Bank has used and expects to continue to use internal resources to
implement its readiness plan and to upgrade or replace the Systems effected by
the Y2K issue. The total cost to the Bank of the Y2K compliance activities has
not and is not anticipated to be material to the financial position or results
of operations in any given year. The Bank anticipates funding the cost of
becoming Y2K compliant out if its current earnings streams.
The Bank is evaluating the adequacy of its loan loss reserve, as it relates
to potential risk posed by the lack of Y2K readiness of its significant
borrowing customers. Bank management is monitoring the loan loss reserve, as it
relates to Y2K matters on an ongoing basis.
A detailed cost analysis of the costs incurred to date in conjunction with
Y2K is being maintained in the Bank's information services area. Based on a
review of this analysis, it was determined that the following are the most
significant Y2K cumulative expenditures to date, along with a projection of
potential expenditures, necessary to complete the Y2K compliance requirements.
New Hardware / Software replacement $270,000
AS/400 for Y2K testing 33,000
Modifications to existing systems 29,000
Other Y2K costs to date 256,000
--------
Total expended to date 588,000
Anticipated additional costs 10,000
--------
Total projected Y2K costs $598,000
The costs and the timetable in which the Bank plans to complete the Y2K
readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. The Bank can make no guarantee that these estimates will be achieved,
and actual results could differ from such plans.
Bank management believes, based on information and testing results obtained
from its mission critical vendors, that they are, and it is anticipated will
remain Y2K, compliant. The Bank will continue to monitor the Y2K compliance of
these two mission critical vendors.
The potential reasonable worst case scenario, relating to Y2K compliance,
would be if either the Bank's or the separate Investment Management and Trust
Division's mission critical vendors supporting both data processing systems
Page 21
<PAGE>
were to fail due to a Y2K problem.
Realizing that some disruption may occur despite our best efforts, because
of the Y2K issue, the Bank has substantially updated its contingency plans for
each critical system, in the event one of those systems fails. The Bank's
mission critical vendors have developed contingency plans to provide resources
during the weekend of December 31, 1999 and for a period of time afterward to
help their clients overcome any unforeseen problems, associated with the
millennium change. The Bank's mission critical vendors anticipate the ability
to resolve any potential Y2K related problem in a timely manner. The
contingency plan was completed and approved by the Risk Management Committee of
the Board of Directors in June 1999.
Page 22
<PAGE>
PART II. OTHER INFORMATION
--------------------------
September 30, 1999
ITEM 1. Legal Proceedings
- --------
None
ITEM 2. Changes in Securities
- --------
None
ITEM 3. Defaults Upon Senior Securities
- --------
None
ITEM 4. Submission of Matters to Vote of Security Holders
- --------
None
ITEM 5. Other Information
- --------
None
ITEM 6. Exhibits and Reports on Form 8-K
- --------
The Corporation filed a report on Form 8-K on March 3, 1999, reporting
the continuation of its stock repurchase program for another year,
through March 31, 2000. The program authorized Corporation management
to spend up to $6,500,000 to repurchase up to 5% of the outstanding
shares of the Corporation as of March 1, 1999.
The Corporation filed a report on Form 8-K on March 8, 1999, reporting
the resignation of Peter H. Havens as Executive Vice President of the
Bank and his resignation as director of both the Bank and Corporation.
Mr. Havens' resignation was for personal reasons.
Page 23
<PAGE>
The Corporation filed a report on Form 8-K on may 28, 1999, reporting
the resignation of Richard I. Sichel as executive Vice President of the
bank. Mr. Sichel resigned to accept a position with another financial
institution.
Page 24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bryn Mawr Bank Corporation
Date: November 9, 1999 By:/s/ Robert L. Stevens
-------------------- ----------------------
Robert L. Stevens
Chairman,
President & Chief
Executive Officer
Date: November 9, 1999 By:/s/ Joseph W. Rebl
---------------------- ------------------
Joseph W. Rebl
Treasurer and
Assistant Secretary
Page 25
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