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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, 1998 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)
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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. [ ]
The aggregate market value of shares of common stock held by non-affiliates of
Registrant (including fiduciary accounts administered by affiliates*) was
$120,302,000 on March 8, 1999.
As of March 8, 1999, 4,306,108 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, 1998,
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 45 through 49. There are 151
pages in this report.
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Form 10-K
Bryn Mawr Bank Corporation
Index
Item No. Page
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Part I
1. Business................................................ 1
2. Properties..............................................31
3. Legal Proceedings.......................................34
4. Submission of Matters to a Vote of Security Holders.....34
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.....................................35
6. Selected Financial Data.................................35
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................35
8. Financial Statements and Supplementary Data.............36
9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure.....................37
Part III
10. Directors and Executive Officers of Registrant..........38
11. Executive Compensation..................................43
12. Security Ownership of Certain Beneficial Owners and
Management..............................................44
13. Certain Relationships and Related Transactions..........44
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................45
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 1, 1999.
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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 outstand ing 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
casualty, property and allied insurance lines, as well as life insurance,
annuities, medical insurance and accident and health insurance for groups and
individuals.
THE BRYN MAWR TRUST COMPANY (JERSEY), LTD.
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The Bryn Mawr Trust Company (Jersey), Ltd. ("BMTC (Jersey)") was
incorporated on September 3, 1998 as a wholly owned subsidiary of The
Corporation. BMTC (Jersey) is incorporated under the laws of the Island of
Jersey, Channel Islands and maintains an office on the Island of Jersey. BMTC
(Jersey) affords the Bank's Investment Management and Trust Division the
opportunity to offer alternative investments, through an offshore subsidiary to
those clients seeking such an investment opportunity.
BRYN MAWR BROKERAGE CO., INC.
- -----------------------------
Bryn Mawr Brokerage Co., Inc. ("BM Brokerage") was incorporated on October
26, 1998 as a wholly owned subsidiary of the Corporation. BM Brokerage began
operating in January 1999. BM Brokerage offers an array of brokerage related
services to the Corporation's customers, including trading of shares, annuities
and mutual funds.
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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, insurance sales and services through Insurance
Counsellors, offshore investing opportunities through BMTC (Jersey) and
brokerage related services through BM Brokerage to its existing customers and to
obtain additional customers primarily 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. (1)
(1) In order to further enhance the array financial products and services
offered, on January 6, 1999, the Corporation acquired CDC Capital Management,
Inc. ("CDC"), as a wholly owned subsidiary. CDC, a manager of investment
managers, advises clients which seek to choose an investment manager. The
Corporation is also in the process of finalizing the acquisition of Joseph W.
Roskos & Co., a firm that provides family business office services, including
accounting, consulting, tax services and fiduciary support for high-net-worth
individuals.
3
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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, 1998 and conducted no
activities other than those activities through its subsidiaries, the Bank,
Insurance Counsellors, BM Brokerage, TCBM and BMTC (Jersey).
A complete list of directors and officers of the Corporation, as of March 1,
1999 is incorporated by reference to page 11 and 12 of the Corporation's Annual
Report to Shareholders for the year ended December 31, 1998.
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
investment management and trust services including estate administration,
investment advisory services, pension and profit sharing administration and
personal financial planning, including tax preparation. As of December 31,
1998, the market value of assets administered by the Bank's Investment
Management and Trust Division was $2,101,251,000. 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 1998 and 1997, residential mortgage interest rates decreased making
residential mortgage refinancing attractive to borrowers, compared
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to similar activity in 1996. As of March 1, 1999, the Bank had no commis sioned
mortgage originators.
The Bank originated and sold $134,676,000 in residential mortgages to the
secondary market in 1998 compared to $75,874,000 originated and sold in 1997.
Net gains and loan fee income on such transactions amounted to $1,187,000 in
1998 compared to $758,000 in 1997. During 1996 the Bank originated and sold
$55,276,000 in residential mortgage loans, generating $615,000 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, 1998, the Bank had 213 full time and 41 part time employees,
including 102 officers, equalling 233.5 full time equivalent staff.
TAX COUNSELLORS OF BRYN MAWR, INC.
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TCBM commenced operation by employing two CPAs (the "Tax Professionals"),
having significant tax planning and preparation background and formerly employed
by a "Big Five" accounting firm. As of March 1, 1999, two additional staff
members have been added to the
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original staff. The first an accountant and the second an attorney specializing
in estate planning. The staff of TCBM, on behalf of TCBM, provide tax planning
and consulting services to both TCBM's and the Bank's 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 entered into an agreement with The Simkiss Agency, Inc.
(the "Agreement"), a duly licensed insurance agency to facilitate the offering
of insurance products by Insurance Counsellors, pursuant to which The Simkiss
Agency, Inc. provides 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. Insurance Counsellors is
in the process of terminating the Agreement and is exploring the possibility of
developing a new business relationship with another agency.
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THE BRYN MAWR TRUST COMPANY (JERSEY), LTD.
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BMTC (Jersey) was incorporated on September 3, 1998, as a wholly owned
subsidiary of the Corporation. BMTC (Jersey) provides the Corporation's clients
with the opportunity to participate in offshore trusts, which are established to
provide the opportunity for investing in foreign securities, the preservation of
family wealth and confidentiality. BMTC (Jersey) maintains an office on the
Island of Jersey in the Channel Islands and has entered into an agreement with
The Royal Bank of Canada Trust Company (Jersey) Limited to provide
administrative and operational support for the facility. BMTC (Jersey) had no
business transactions during 1998 and has no employees.
BRYN MAWR BROKERAGE CO., INC.
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BM Brokerage was incorporated on October 26, 1998 as a wholly-owned subsidiary
of the Corporation. BM Brokerage was created to offer securities products,
including mutual funds, annuities, individual stocks and bonds and retirement
plans through the Bank's branch system. BM Brokerage has affiliated with UVEST
Financial Services, Inc., a broker-dealer headquartered in Charlotte, North
Carolina to provide the necessary back office support. As of March 1, 1999, BM
Brokerage had 1 employee. BM Brokerage consumated no business transactions
during 1998 and earned no revenues.
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SOURCES OF THE CORPORATION'S REVENUE
------------------------------------
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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1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Commercial Loans 18% 17% 18% 16% 14%
Mortgage and Construction Loans 16 15 16 16 15
Consumer Loans 21 25 25 25 25
Home Equity/Line of Credit 2 2 3 3 3
Securities 5 6 7 10 13
Federal Funds Sold 2 3 1 2 1
--- --- --- -- ---
Total Interest Income 64 68 70 72 71
Trust Services 23 21 17 17 16
Other Income * 13 11 13 11 13
--- --- --- --- ---
Total Revenues * 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
* Revenues were generated by the Bank, TCBM and Insurance Counsellors in 1998
and by the Bank and TCBM in 1997. Respective revenues generated by TCBM and
Insurance Counsellors aggregated 1.7% and .5% of the Corporation's total
revenues in 1998. Revenues generated by TCBM aggregated .4% in 1997. There
were no revenues generated by BMFS and PRC during 1998, 1997, 1996, 1995 or
1994. All revenues were generated by the Bank during 1996, 1995 and 1994.
8
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STATISTICAL INFORMATION
-----------------------
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, 1998, as follows:
Disclosure Required by Industry Reference to the Corporation's
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Guide 3 1998 Annual Report
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(Financial Section)
-------------------
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 25)
B. Maturities . . . . . . . . . . . . Notes to Consolidated Financial
Statements, Note 3 (page 25)
III. Loan Portfolio
A. Types of Loans . . . . . . . . . . Loan Portfolio (page 9)
B. Maturities and Sensitivity to
changes in Interest Rates . . . . Loan Portfolio - Maturity
distribution (page 9)
Interest Rate Sensitivity
Analysis (page 13)
C. Non-Performing assets . . . . . . Non-Performing Assets (page 12)
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Disclosure Required by Industry Reference to the Corporation's
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Guide 3 1998 Annual Report
- ------- ------------------
(Financial Section)
-------------------
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 11)
VI. Return on Equity and Assets . . . . . . Selected Financial Data
(page 1)
10
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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 five full service
branch offices located in Havertown, Wayne, Wynnewood and Paoli, Pennsylvania
and, during 1998, upgraded its limited service facility, located at One Tower
Bridge in West Conshohocken Pennsylvania, to a full service branch. 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. During 1999, the Bank maintained a limited service branch
at Radnor Corporate Center. The lease for this facility expired in December
1998 and was not renewed. Therefore, the Bank closed this limited service
facility in December 1998. During 1998, the Bank's Investment Management and
Trust Division moved from leased office space at Two Tower Bridge, West
Conshohocken to new leased space at Four Tower Bridge in Conshohocken. During
1998. the Bank removed an automatic teller machine location at Villanova
University. All facilities are located in 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
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savings and loan associations, trust companies 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 permits TCBM
to provide its services anywhere in the United States. TCBM leases office space
from the Bank in the Bank's main office building, located in Bryn Mawr
Pennsylvania. TCBM relocated from offices in Ardmore Pennsylvania in September
1998. 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 building of the Bank, located at 801
Lancaster Avenue, Bryn Mawr, Pennsylvania. Insurance Counsellors' primary
competition is from insurance agencies and insurance agents.
BMTC (Jersey)'s primary function is to provide the Bank's Investment
Management and Trust Division's clients with the opportunity to participate in
offshore trust related activity. Therefore, BMTC (Jersey)'s primary competition
is from other financial institutions in the Bank's market area that offer
similar offshore trust capabilities. BMTC (Jersey) maintains an office on the
Island of Jersey, Channel Islands that is managed administratively for BMTC
(Jersey) by The Royal Bank of Canada Trust Company (Jersey), Ltd.
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BM Brokerage's market area is primarily located in southeastern Pennsylvania,
New Jersey and Delaware, although they are able to market and sell securities
related products anywhere in the United States. BM Brokerage is housed in the
main office building of the Bank, located at 801 Lancaster Avenue, Bryn Mawr,
Pennsylvania. BM Brokerage's primary competition is from brokerage firms,
mutual funds and financial institutions offering similar kinds of securities
related products.
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SUPERVISION AND REGULATION
--------------------------
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
-----------------------------
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 control ling 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
16
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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.
17
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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 obtained 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
- -----------------------------------------------------------
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 Corpora tion. 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
19
<PAGE>
cause serious risk to the Bank and are inconsistent with the Bank Holding
Company Act or other applicable federal banking laws.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
-------------------------------------------------------------
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,
20
<PAGE>
through the Federal Reserve discount window, to troubled financial 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
-------------------------------------------
PENNSYLVANIA ANTI-TAKEOVER LEGISLATION
- --------------------------------------
The Corporation is also subject to the Pennsylvania Business Corpo ration 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"
21
<PAGE>
by providing for disgorgement of certain profits by a control person or 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
22
<PAGE>
statement for the 1992 shareholders' meeting, the Board of Directors 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 regula tions 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
23
<PAGE>
prior approval of the Department of Banking and the Federal Reserve 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 a well capitalized
24
<PAGE>
financial institution, in 1998 and 1997, paid aggregate FDIC insurance premiums
of $37,000 and $36,000, respectively. 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 opera tions 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 1999 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
25
<PAGE>
rate for member bank borrowings, changes in reserve requirements against 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
26
<PAGE>
operating earnings. The ability of the Bank to pay dividends in the future is
presently and could be further influenced, among other things, by applicable
capital guidelines discussed below or by bank regulatory and supervisory
policies. The ability of the Bank to make funds available to the Corporation is
also subject to restrictions imposed by federal law. The amount of other
payments by the Bank to the Corporation is subject to review by regulatory
authorities having appropriate authority over the Bank or Corporation and to
certain legal limitations.
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
27
<PAGE>
Ratio, under the new guidelines. A Tier II capital ratio is also 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, 1998 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
28
<PAGE>
restrictions on, different types of bank organizations. Among current 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.
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 5 and 6 of this
Form 10-K for additional information about TCBM.
BMTC (Jersey) is a wholly owned subsidiary of the Corporation, which
provides offshore trust investing opportunities to the Bank's Investment
Management and Trust Division clients, and is subject to regulation and
inspection by the Federal Reserve Board. Please refer to pages 6 and 7 of this
Form 10-K for additional information about BMTC (Jersey).
29
<PAGE>
BM Brokerage is a wholly owned subsidiary of the Corporation, which
sells securities products, including mutual funds, annuities, individual stocks
and bonds, and retirement plans through the Bank's branch system. BM Brokerage
is subject to regulation and examination by the by the Federal Reserve Board.
Please refer to page 7 of this Form 10-K for additional information about BM
Brokerage.
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 Pennsylvania Insurance Department and the
Pennsylvania Department of Banking. Please refer to page 6 of this Form 10-K
for additional information about Insurance Counsellors.
30
<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 meeting room and is subject to a mortgage as
outlined in Note 6 to the Corporation's financial statements, on page 26 of
the Financial Section its 1998 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 Corpora tion 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
31
<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) One Tower Bridge (1) 1995
Through July 31, 2001 West Conshohocken, Pa 19428
Branch Office (leased) The Quadrangle (2) 1989
month to month basis 3300 Darby Road
Haverford, PA 19041-1095
Branch Office (leased) Waverly Heights, Ltd. (2) 1986
month to month basis Life Care Community
Gladwyne, PA 19035
Branch Office (leased) Martins Run (2) 1987
month to month basis Life Care Community
11 Martins Run
Media, PA 19063
Branch Office (leased) Bellingham (2) 1991
through October 31, 2001 1615 East Boot Road
West Chester, PA 19380
Branch Office (leased) Beaumont at Bryn Mawr (2) 1995
through April 16, 2001 Retirement Community
Bryn Mawr, PA 19010
Office Space (leased) Four Tower Bridge (3) 1998
through October 1, 2008 One Fayette Street
Conshohocken, PA 19428
32
<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) 801 Lancaster Avenue (6) 1998
month-to-month basis Bryn Mawr, PA 19010
(1) This 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 and the surrounding community. There is an automatic teller
machine located within the facility. The lease is for 705 square feet
and expires on July 31, 2001.
(2) This branch office has been established primarily to meet the needs of
the residents of the Life Care Community in which it is located.
(3) 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 October
1, 2008.
(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 meeting room, put in
service in August, 1990.
(5) This property became the new location of the Bank's Investment
Management 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 lease is for 350 square feet of office space to house TCBM's
staff. The lease is on a month-to-month basis.
33
<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.
34
<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 36 of
the Financial Section of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1998.
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, 1998.
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 17 of the Financial
Section of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1998.
35
<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 35 of
the Financial Section of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1998.
36
<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.
37
<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 1,
1999:
AGE AS OF OFFICE WITH THE
NAME MARCH 1, 1999 CORPORATION AND/OR BANK
- ---- ------------- -----------------------
Robert L. Stevens 61 Chairman, President and
Chief Executive Officer
Director of Corporation
and Bank
Samuel C. Wasson, Jr. 60 Secretary and Director of
Corporation and Bank and
Vice Chairman of Bank
Joseph W. Rebl 54 Treasurer of Corporation
and Senior Vice
President- Finance,
Treasurer & Chief
Financial Officer of Bank
Robert J. Ricciardi 50 Vice President of the
Corporation and Executive
Vice President and Chief
Credit Policy Officer
Paul M. Kistler, Jr. 62 Senior Vice President of
Bank- Human Resources,
Facilities, Security and
Compliance
Thomas M. Petro 40 Senior Vice President of
Bank- Community Banking
38
<PAGE>
AGE AS OF OFFICE WITH THE
NAME MARCH 1, 1999 CORPORATION AND/OR BANK
---- ------------- -----------------------
Peter H. Havens 44 Executive Vice President
of Bank- Investment
Management and Trust and
Director of Bank and
Corporation
Leo M. Stenson 48 Senior Vice President and
Auditor of Bank
Joseph G. Keefer 40 Senior Vice President
and Chief Lending Officer
Alison E. Gers 41 Senior Vice President
Marketing
June M. Falcone 32 Senior Vice
President- Banking
Operations
William R. Mixon 52 Senior Vice President-
Information Systems & Chief
Technology 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. In early 1998 Mr. Wasson assumed responsibility for the
information systems and banking operations functions.
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
39
<PAGE>
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.
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. In 1999, Mr. Rebl was designated Chief Financial Officer 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. In early
40
<PAGE>
1998, Mr. Kistler turned over responsibility for the information systems and
banking operations areas to Mr. Wasson. In September, 1998, Mr. Kistler assumed
responsibility for the Bank's Compliance and Security functions. From 1976 to
1992, Mr. Kistler was employed by Philadelphia National Bank (now merged into
First Union 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
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. In March 1999, Mr. Havens resigned
as Executive Vice President of the Bank and as a Director of BMBC and the Bank.
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
41
<PAGE>
elected Senior Vice President and Auditor. In September, 1998, Mr. Stenson
turned over responsibility for the Bank's Compliance and Security function to
Mr. Kistler.
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.
Ms. Gers was employed by the Bank as Senior Vice President- Marketing in
May 1998. Prior to her employment by the Bank, she was Executive Vice President
of CoreStates Bank, NA from July 1995 until May 1998, having responsibility for
retail and small business marketing, advertising and product development. From
February 1988 until August 1992, Ms. Gers was Senior Vices President of Home
Unity Savings Bank, having responsibility for retail banking. From January 1986
to October 1987, she was Marketing Director for Colonial Penn Group. From
February 1983 until January 1986, she was Product Manager for 3rd party life and
health insurance products for National Liberty Marketing.
Ms. Falcone was employed by the Bank as a Junior Accountant in the
Comptrollers' Department in February 1989. She was appointed Assistant
Comptroller in January 1991. She became Assistant Vice President, having
responsibility for deposit accounting in December 1992. In August 1994, Ms.
Falcone was appointed Vice President. In October 1996 she was appointed Group
Vice President. Ms. Falcone assumed responsibility for the Bank's Cash
Management and Electronic Services department in January 1997. She was
42
<PAGE>
appointed Senior Vice President- Banking Operations, Cash Management and
Electronic Services in November 1997.
Mr. Mixon was employed by the Bank in June 1969 as a teller. He was
appointed Assistant Treasurer in the Bank's Community Banking Division in
January 1974. In January 1976, he was appointed Assistant Vice president. In
September 1983, Mr. Mixon was appointed Vice President. He assumed
responsibility for the Bank's Operations Department in January 1986. In 1995,
he was appointed Group Vice president in charge of Information Systems. In
March 1997, he was appointed Senior Vice President- Information Systems. In
January 1999, he was also made the Bank's Chief Technology Officer.
None of the above executive officers has any family relationship with any
other executive officer or with any director of the Corporation or Bank.
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.
43
<PAGE>
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.
44
<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 incorpo rated
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 Commis sion
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.
45
<PAGE>
(D) Agreement dated December 20, 1990 between Bryn Mawr Bank Corporation
and Profit Research Consulting, Inc., is incorporated 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 Plan, is hereby
incorporated by reference to the Directors Stock Option 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 Bryn
Mawr Bank Corporation 1998 Stock Option the Proxy Statement.
46
<PAGE>
(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.
(L) Agreement dated January 1, 1999 between Bryn Mawr Brokerage Company,
Inc. and UVEST Financial Services Group, Inc., to provide brokerage
support services to BM Brokerage is ncorporated by reference into this
filing of the Corporation's Form 10-K.
13. - Annual Report to Security Holders
---------------------------------
The Registrant's 1998 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
The Bryn Mawr Trust Company (Jersey), Ltd. Island of Jersey,
Channel Islands
Bryn Mawr Brokerage Co., 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 1999 Annual
Meeting to be held on April 20, 1999 are filed herewith as Exhibit 99.
47
<PAGE>
(b) No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1998.
48
<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 35 of the Financial Section of
the Corporation's 1998 Annual Report to Shareholders.
Consolidated Financial Statements and related notes are incorporated by
reference to the Financial Section of the Corporation's 1998 Annual Report
to Shareholders, and may be found on the pages of said Report as indicated
in the parenthesis:
Balance Sheets, December 31, 1998 and 1997 (page 18)
Statements of Income for the years ended December 31, 1998, 1997 and
1996 (page 19)
Statements of Comprehensive Income for the years ended December 31,
1998, 1997 and 1996 (page 21)
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 (page 22)
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996 (page 20)
Notes to Financial Statements (pages 23 to 34)
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 32 of the Financial Section of the
Corporation's Annual Report to Shareholders for the fiscal years ended
December 31, 1998 and 1997.
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 refer ence,
see pages 45 through 49 of this report.
49
<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 March 24, 1999
---------------------------- and Chief Executive --
Robert L. Stevens Officer (Principal Executive
Officer) and Director
/s/ Joseph W. Rebl Treasurer (Principal March 24, 1999
---------------------------- Financial and Principal --
Joseph W. Rebl Accounting Officer)
/s/ Richard B. Cuff Director March 25, 1999
---------------------------- --
Richard B. Cuff
Director March ___, 1999
----------------------------
Warren W. Deakins
/s/ John D. Firestone Director March 25, 1999
----------------------------
John D. Firestone
Director March ___, 1999
----------------------------
William Harral III
/s/ Wendell F. Holland Director March 24, 1999
--------------------------- --
Wendell F. Holland
/s/ Sherman R. Reed, 3rd Director March 26, 1999
---------------------------- --
Sherman R. Reed, 3rd
50
<PAGE>
NAME TITLE DATE
---- ----- ----
/s/ Phyllis M. Shea Director March 24, 1999
- ------------------------------- --
Phyllis M. Shea
/s/ B. Loyall Taylor, Jr. Director March 24, 1999
- ------------------------------- --
B. Loyall Taylor, Jr.
Director March , 1999
- ------------------------------- --
Nancy J. Vickers
/s/ Samuel C. Wasson, Jr. Director March 26, 1999
- ------------------------------- --
Samuel C. Wasson, Jr.
/s/ Thomas A. Williams Director March 24, 1999
- ------------------------------- --
Thomas A. Williams
51
<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, 1998
- --------------------------------------------------------------------------------
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
<PAGE>
[LOGO OF BRYN MAWR BANK APPEARS HERE]
98
[GRAPHIC APPEARS HERE]
BRYN MAWR BANK CORPORATION
1998 Annual Report
<PAGE>
Bryn Mawr Bank Corporation
Consolidated Financial
Highlights
[LOGO OF BMT APPEARS HERE]
CONTENTS:
- ----------------------------------------
2. Chairman's Letter
4. The Year in Review
11. Bank Information
12. Corporate Information
<TABLE>
<CAPTION>
Five-Year
Compound
FOR THE YEAR 1998 1997 Change Growth Rate
- ------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net interest income $ 20,462 $ 18,368 11% 8%
Other income 14,720 11,749 25 11
Other expenses 24,695 20,837 19 8
Net income 6,857 6,130 12 13
<CAPTION>
AT YEAR-END
- ------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Total assets $391,840 $374,210 5% 4%
Total net loans 277,085 264,484 5 8
Total deposits 342,357 328,806 4 3
Shareholders' equity 42,221 39,349 7 11
<CAPTION>
PER COMMON SHARE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per common share $ 1.58 $ 1.40 13% 13
Earnings per common
share-assuming dilution $ 1.51 $ 1.34 13 12
Dividends declared 0.465 0.36 29 36
Book value 9.81 9.00 9 12
Closing price 27.25 25.50 7 27
<CAPTION>
SELECTED RATIOS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Return on average assets 1.91% 1.74%
Return on average
shareholders' equity 17.06% 16.45%
</TABLE>
* Per share data restated to reflect the effect of the 2-for-1 stock split,
effective September 1, 1998
1
<PAGE>
Bryn Mawr Bank Corporation
- --------------------------------------------------------------------------------
Dear Shareholder:
[PHOTO APPEARS HERE]
We enjoyed another year of improved earnings, expanded services, and the recent
acquisition of two fine businesses and the start-up of another. These new
companies importantly expand our capacity to provide financial services to
families.
Net income per share, on a fully diluted basis, was up 13% this year, and when
all the non-operating related elements are taken from both years' results, we
made a 14% gain in net income. So though we've been building in new financial
services--insurance, tax counsel, expanded investment management, and financial
planning--we've still been able to increase our earnings nicely.
What We Are
For a long while, our belief has been that there's a place for a small financial
institution which can provide its clients--businesses, institutions, and
families--a full range of first-quality financial services in a thoughtful,
warm, and personal way. Every effort is centered, not on our needs, but on the
needs of the client and the client's family. Our interest is that our clients'
goals are fully met. If by us, excellent; if better by someone else, we'll help
make that connection. Our clients' needs carry the day.
This Year
This year was an exciting one. Insurance Counsellors of Bryn Mawr started its
operations in January. We sold both property/casualty and life insurance, and
learned a lot about how different the commissioned based insurance business is
compared to our traditional banking business. We wound up the year with a
$25,000 loss, though we saved more than that in our own employee and corporate
coverages. Insurance is a business we like, because it plays a vital part in the
well-being of our clients' financial lives, especially with respect to estate
planning.
As the year ended, three new additions were made to the range of financial
services we provide our clients. Bryn Mawr Brokerage Co., Inc. was established
at year end. We can now meet family financial needs which do not require the
investment management skills housed
2
<PAGE>
1998 ANNUAL REPORT
- -------------------------------------------------------------------------------
in Investment Counsellors of Bryn Mawr. We also acquired CDC Capital Management,
Inc., an organization appropriately categorized as a "manager of managers." A
manager of managers does not pick individual securities, but assembles
information about various investment managers' styles and performances. With CDC
Capital Management, we've acquired the expertise to choose from a pool of top
performing managers from around the world. Bryn Mawr's "large cap growth"
management style has produced excellent results--over the last five years, our
benchmark results have exceeded the Standard and Poor 500 record--the CDC
addition allows us in-house capacity to better diversify clients' investments.
And, Joseph W. Roskos & Co. agreed to join the Corporation's family, effective
January 1, 1999. This accounting firm traces its beginnings to the early 1900's,
and provides individuals and families full financial accounting and tax
preparation, and other family financial services. The Roskos firm is the premier
family office accounting firm in our marketplace.
So, we're on the move with a full range of family financial services: insurance,
tax counsel, fiduciary services, investment management, brokerage, family office
services, and our traditional personal and business banking services.
A Look Ahead
We're fully aware that our independent existence depends upon our capacity to
increase earnings. We shoot for a 15% net income growth as we plan the year
ahead, but recognize that doubling our net income every five years or so is an
aggressive target.
There are challenges on our path. Challenges that could become either stepping
stones or stumbling blocks. Technology, office space, staff capacities and
competence, and probably the most challenging, actually getting the Corporation
to fully function, be fully alive, and perfectly meet the needs of the clients
we're privileged to serve. We've engaged professional help and are committing
serious time to reshaping ourselves to better communicate, function, grow, and
perform as individuals and as teams.
A World of Difference
We are all but unique in the world of banking--a world of difference for those
we serve.
As the years pass, I grow more and more proud of what we have become, and feel
deeply indebted to our entire staff, for the good they do, and the part they
play in making us what we are. We have 25 men and women now attending their
fifth class in an advanced financial planning course started two years ago, and
presented by The American College here in Bryn Mawr. These people have given up
much to meet the rigor of the program, and have learned a lot about how to help
clients and their families improve their financial lives. Also, we've twelve men
and women who have achieved their Series 6 and 63-NASD licenses to sell
securities.
Y2K looms, and has, and will continue to, cost us money. But I'm fully confident
of the safety of your money here when the year-end change comes.
We've signed a 29 year lease on buildings 2 and 6 South Bryn Mawr Avenue, two
office buildings which lie between the Bank building and the Investment
Management and Trust building at 10 South Bryn Mawr Avenue. We need to do
extensive renewal of the second floor of our corporate headquarters building,
and will start that work this year. This will be expensive and disruptive, but
essential.
I hope you will call me if ever you have a question. I'm at 610-526-2300. Thank
you for your support, your interest, and, if appropriate, your business. If you
don't bank with us, come in! See what it feels like to bank where people really
care about you and your family's financial well being. There is a world of
difference, right here in Bryn Mawr.
Sincerely,
/s/ Robert L. Stevens
Robert L. Stevens
Chairman
February 24, 1999
3
<PAGE>
Bryn Mawr Bank Corporation
- --------------------------------------------------------------------------------
[PHOTO OF JOSEPH W. ROSKOS APPEARS HERE]
[PHOTO OF J. MICHEAL DEVINE APPEARS HERE]
- --------------------------------------------------------------------------------
Above: Joseph W. Roskos, Joseph W. Roskos & Co.
Below: J. Micheal Devine, CDC Capital Management, Inc.
The Year in Review
In 1998, Bryn Mawr Bank Corporation continued to enhance its ability to provide
businesses, individuals, families and foundations with a complete spectrum of
financial services including loans, checking accounts, cash management,
investment management, estate planning, fiduciary services, tax planning advice
and tax preparation. The Corporation's capabilities were enhanced by the
addition of highly qualified staff members, the upgrading of the skills of our
existing staff, the introduction of new services, and the addition of new and
supporting initiatives.
4
<PAGE>
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
New Acquisitions
In November, Bryn Mawr Bank Corporation announced its intention to acquire
Joseph W. Roskos & Co., a well-known accounting firm that provides family
business office services including accounting, consulting, tax services, and
fiduciary support for high-net-worth individuals and families. The organization,
which has a staff of twenty-five, traces its roots back to the earliest part of
the twentieth century. Joseph W. Roskos, CPA, has served as its president since
1991. He holds a BS in accounting from Syracuse University, a JD from Temple
University Law School, and a Master of Laws in Taxation, from Villanova Law
School. In January of 1999, in the Bank's Centennial Wing, Mr. Roskos presented,
for a select group of Bryn Mawr Trust customers, a program that outlined the
scope of the specialized services available through the Roskos organization.
Early in 1999, Bryn Mawr Bank Corporation announced the successful completion of
the acquisition of CDC Capital Management, Inc., an investment advisory firm
registered with the United States Securities and Exchange Commission. CDC has in
excess of $200 million under advisement and maintains strategic business
alliances with Callan Associates Independent Advisor Group and the SEI
Investment Select Advisor Council. Callan Associates of San Francisco, is one of
the world's preeminent investment consulting firms. SEI, with headquarters in
Oaks, PA, offers a variety of services for the investment management and trust
industry. With CDC, the Corporation has acquired the expertise to bring our
clients the same investment processes and global specialist money management as
used by the nation's largest pools of assets. Founded in 1993, CDC is headed up
by J. Michael Devine. Norman S. MacQueen, III, heads up CDC's client services.
[BAR GRAPH APPEARS HERE]
5
<PAGE>
[PHOTO OF PETER H. HAVENS APPEARS HERE]
[PHOTO OF F. CHRISTOPHER CAMPBELL, III, APPEARS HERE]
Above: Peter H. Havens, Investment Management & Trust
Below: F. Christopher Campbell, III, Bryn Mawr Brokerage Company, Inc.
Offshore Trust Company Established
As a result of an initiative spearheaded by Peter H.Havens, executive vice
president, Investment Management & Trust, The Bryn Mawr Trust Company (Jersey),
Ltd. was established in September 1998, to provide Bryn Mawr Trust clients with
the opportunity to participate in offshore trusts. Offshore trusts are
established for a variety of reasons, such as the preservation of family wealth,
investing in foreign securities, and protecting confidentiality. Bryn Mawr Trust
(Jersey), Ltd., is located on the Island of Jersey in the Channel Islands near
the United Kingdom.
Bank Enters Securities Brokerage Business
Bryn Mawr Brokerage Company, Inc., was formed in December of 1998. The new
subsidiary was created to offer securities products, including mutual funds,
annuities, individual stocks and bonds, and retirement plans through the Bank's
branch system. Twenty branch service representatives became licensed by the
National Association of Securities Dealers to sell and service investment
products. Thomas M. Petro, senior vice president of Community Banking assumed
the additional role of president of the new company. He was joined by F.
Christopher Campbell, vice president, who has considerable experience in
securities brokerage and retirement services. An extensive training program has
been developed to prepare the newly licensed bankers to effectively sell and
support their clients' investment needs. The new company has partnered with
UVEST Financial Services, Inc., a broker-dealer headquartered in Charlotte,
North Carolina.
Superior Investment Performance
The performance record of our investment managers continued to be impressive.
Indata, a nationally recognized monitor of investment fund performance, has
again ranked the Bryn Mawr Trust Qualified Equity Fund in the first quartile of
funds analyzed.
6
<PAGE>
1998 ANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
From Left to Right:
Carmen L. Fiorentino, James J. Egan, J. David Peterson, Commercial & Real Estate
Lending Services
Leadership In Commercial Real Estate Lending
Due to the efforts of a team of our commercial lending professionals, Bryn Mawr
Trust has become the lead bank in a co-operative financing venture for a new
multi-sports center in Downingtown, Pennsylvania, that provides complete indoor
and outdoor facilities for a variety of sports for instruction, leagues, camps,
clinics and tournaments. The center includes four private meeting rooms, a
viewing mezzanine, a full-service restaurant, a retail specialty sporting goods
store, and a sports medicine center. Sharing the client's vision, our lending
officers obtained the necessary support from three other banks which
participated in the financing of this project.
TRUST ASSETS
In millions of dollars
[BAR CHART APPEARS HERE]
LOANS SERVICED FOR OTHERS
In millions of dollars
[BAR CHART APPEARS HERE]
7
<PAGE>
Bryn Mawr Bank Corporation
- --------------------------------------------------------------------------------
[GROUP PHOTO APPEARS HERE]
From Left to Right:
Robert M. Fedoris, Joseph W. Roskos & Co.
Lorraine T. "Jane" Gardner, Insurance Counsellors of Bryn Mawr
June M. Falcone, Banking Operations
John M. Grib, Investment Counsellors of Bryn Mawr
R. Ross Collins, Jr., Tax Counsellors of Bryn Mawr
Doris P. Theune, Investment Management & Trust
8
<PAGE>
1998 Annual report
- --------------------------------------------------------------------------------
Improving The Workplace In order
In order to create a working environment where people are more creative,
effective, interactive and satisfied, the Bank has employed the services of a
professional consulting firm. In September, 233 employees completed a working
environment questionnaire. Twenty-five employees were personally interviewed,
and senior management participated in a special training session. The results of
these fact-gathering efforts were carefully analyzed by the outside experts. The
process was designed to provide a baseline from which Bryn Mawr Trust can
improve performance, become more competitive, and provide a more meaningful work
life for all employees. A pilot program, "Working Together to Build a Better
BMT," kicked off in February 1999, to focus on organizational development. This
process will continue throughout the year.
Facilities Upgrades
In October, Investment Counsellors of Bryn Mawr moved from its rather cramped
quarters at Two Tower Bridge in Conshohocken to offices in the newly constructed
Four Tower Bridge in West Conshohocken. The new office space features nine
private offices, two handsome conference rooms, a file room, well-appointed
reception area, and efficient open office area for support staff.
During 1998, our West Conshohocken service office, at One Tower Bridge, was
closed down temporarily, expanded, refurbished, and reopened as a full service
branch office with teller and banking services available five days a week.
New ATM's were installed at the Paoli and Wynnewood branches. The machines will
eventually have the capability to cash checks, dispense coins, coupons and
postage stamps. The entire drive-up facility at the Wynnewood branch was
upgraded.
The third floor of the headquarters building at Bryn Mawr, which formerly housed
the old boardroom, an additional conference room, and ladies lounge, was
completely renovated. The handsomely appointed area features five private
offices, a conference room, and a reception area. Tax Counsellors of Bryn Mawr
moved into these quarters in August.
TOTAL REVENUE STREAMS
In millions of dollars
[BAR GRAPH APPEARS HERE]
TOTAL ASSETS MANAGED
In millions of dollars
[BAR GRAPH APPEARS HERE]
9
<PAGE>
Bryn Mawr Bank Corporation
- --------------------------------------------------------------------------------
COMMON STOCK
In millions of dollars
[BAR CHART APPEARS HERE]
Telecommunications Upgraded
In late spring, a new telephone system was installed to provide technologically
improved service for the Bryn Mawr headquarters building, the investment and
trust center in Bryn Mawr, and the corporate operations center and branch office
housed in our Wayne Building. The new system replaced equipment which was at
maximum capacity and was not Year 2000 compliant.
Eye On The Future
From every possible aspect--staff expertise, technology, variety and quality of
services offered--management is taking the necessary steps to provide the
capacity to meet the challenges to be faced in the future. The guiding principle
as we go forward will be to serve the best interest of our clients throughout
the various stages of their lives.
10
<PAGE>
1998 ANNUAL REPORT
- ------------------------------------------------
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
Alison E. Gers
- -------------------------------------------------------
Senior Vice President, Marketing
Joseph G. Keefer
- -------------------------------------------------------
Senior Vice President and Chief
Lending Officer
Paul M. Kistler, Jr.
- -------------------------------------------------------
Senior Vice President, Facilities,
Human Resources, Security and
Compliance
Donald B. Krieble
- -------------------------------------------------------
Senior Vice President, Consumer
Credit Services
Herbert T. McDevitt
- -------------------------------------------------------
Senior Vice President, Family Office
William R. Mixon
- -------------------------------------------------------
Senior Vice President,
Information Systems and
Chief Technology Officer
Thomas M. Petro
- -------------------------------------------------------
Senior Vice President,
Community Banking
Joseph W. Rebl*
- -------------------------------------------------------
Senior Vice President, Treasurer,
and Chief Financial Officer
Walter Smedley, III
- -------------------------------------------------------
Senior Vice President, Commercial
& Real Estate Lending Services
Leo M. Stenson
- -------------------------------------------------------
Senior Vice President and Auditor
Carmen L. Fiorentino
- -------------------------------------------------------
Group Vice President, Commercial &
Real Estate Lending Services
Richard J. 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
One Tower Bridge
West Conshohocken, Pennsylvania 19428
312 East Lancaster Avenue
Wynnewood, Pennsylvania 19096
Investment Management & Trust Division:
10 South Bryn Mawr Avenue
Bryn Mawr, PA 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
The Quadrangle
Haverford, Pennsylvania
Waverly Heights
Gladwyne, Pennsylvania
Other Financial Services:
BMT Mortgage Company
- -------------------------------------------------------
A DIVISION OF THE BRYN MAWR TRUST COMPANY
BRYN MAWR, PENNSYLVANIA
William F. Mannion, Jr., Managing Director
Patrick J. Keenan, Managing Director
Bryn Mawr Brokerage Company, Inc.
- -------------------------------------------------------
A SUBSIDIARY OF BRYN MAWR BANK CORPORATION
BRYN MAWR, PENNSYLVANIA
Thomas M. Petro, President and Chief Executive Officer
CDC Capital Management, Inc.
- -------------------------------------------------------
A SUBSIDIARY OF BRYN MAWR BANK CORPORATION
450 Sentry Parkway
Suite 105, P.O. Box 1212
Blue Bell, Pennsylvania 19422
J. Michael Devine, President and Chief Executive Officer
Insurance Counsellors of Bryn Mawr, Inc.
- -------------------------------------------------------
A SUBSIDIARY OF THE BRYN MAWR TRUST COMPANY
BRYN MAWR, PENNSYLVANIA
John G. Daniel, President and Chief Executive Officer
Investment Counsellors of Bryn Mawr
- -------------------------------------------------------
A DEPARTMENT OF THE INVESTMENT
MANAGEMENT & TRUST DIVISION
Four Tower Bridge
200 Barr Harbor Drive, Suite 225
West Conshohocken, Pennsylvania 19428
Richard I. Sichel, Senior Managing Director and
Chief Investment Officer
Betty K. Taylor, Senior Managing Director
Joseph W. Roskos & Co.
- -------------------------------------------------------
A SUBSIDIARY OF BRYN MAWR BANK CORPORATION
2011 Renaissance Boulevard, Suite 200
King of Prussia, Pennsylvania 19406
Joseph W. Roskos, President and Chief Executive Officer
Tax Counsellors of Bryn Mawr, Inc.
- -------------------------------------------------------
A SUBSIDIARY OF BRYN MAWR BANK CORPORATION
BRYN MAWR, PENNSYLVANIA
William H. Giese, President and Chief Executive Officer
11
<PAGE>
Bryn Mawr Bank Corporation
--------------------------------------------------------
Corporate Information
Directors:
Richard B. Cuff
- -------------------------------------------------------
Chairman, Cuffco, Inc.
Warren W. Deakins
- -------------------------------------------------------
Self-Employed, Insurance Sales
John D. Firestone
- -------------------------------------------------------
Partner, Secor Group;
Director, Allied Capital Corporation;
Director, Security Storage Company of
Washington, DC; and
Director, Business Mortgage Investors, Inc.
William Harral, III
- -------------------------------------------------------
Chairman, C&D Technologies, INC.*
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.
Nancy J. Vickers
- -------------------------------------------------------
President, Bryn Mawr College
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.
* Commencing April 1, 1999
Annual Meeting:
The Annual Meeting of Shareholders of Bryn Mawr Bank Corporation will be held in
the Gregg Conference Center, at The American College, located at 270 South Bryn
Mawr Avenue, in Bryn Mawr, Pennsylvania, on Tuesday, April 20, 1999, at 2:00
p.m.
Market Makers:
Herzog, Heine, Geduld, Inc.
- -------------------------------------------------------
New York, New York
Knight Securities, Inc.
- -------------------------------------------------------
New York, New York
Ryan Beck and Company, Inc.
- -------------------------------------------------------
West Orange, New Jersey
F.J. Morrissey & Co., Inc.
- -------------------------------------------------------
Philadelphia, Pennsylvania
McConnell Budd & Downes
- -------------------------------------------------------
Morristown, New Jersey
Janney Montgomery Scott, Inc.
- -------------------------------------------------------
Philadelphia, Pennsylvania
Corporate Headquarters
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
610-526-2302
Auditors
PricewaterhouseCoopers LLP
- -------------------------------------------------------
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>
Financial Section
Bryn Mawr Bank Corporation
1998 Annual Report
Contents
1 Selected Financial Data
2 Management's Discussion and Analysis
18 Consolidated Balance Sheets
19 Consolidated Statements of Income
20 Consolidated Statements of Cash Flows
21 Consolidated Statements of Changes in Shareholders' Equity
23 Notes to Consolidated Financial Statements
35 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, 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income ......................................... $ 26,438 $ 25,297 $ 24,337 $ 23,617 $ 20,378
Interest expense ........................................ 5,976 6,929 6,490 7,246 5,077
-------------------------------------------------------------------------
Net interest income ..................................... 20,462 18,368 17,847 16,371 15,301
Loan loss provision ..................................... 150 200 350 500 500
-------------------------------------------------------------------------
Net interest income after loan loss provision ........... 20,312 18,168 17,497 15,871 14,801
Other income ............................................ 14,720 11,749 10,423 9,197 8,383
Other expenses .......................................... 24,695 20,837 18,978 18,325 17,535
-------------------------------------------------------------------------
Income before income taxes .............................. 10,337 9,080 8,942 6,743 5,649
Applicable income taxes ................................. 3,480 2,950 2,900 2,100 1,600
-------------------------------------------------------------------------
Net income .............................................. $ 6,857 $ 6,130 $ 6,042 $ 4,643 $ 4,049
-------------------------------------------------------------------------
Per share data*:
Earnings per common share:
Basic ........................................... $ 1.58 $ 1.40 $ 1.38 $ 1.06 $ 0.93
Diluted ......................................... $ 1.51 $ 1.34 $ 1.33 $ 1.04 $ 0.92
Dividends declared ................................... $ 0.465 $ 0.36 $ 0.46 $ 0.25 $ 0.16
Weighted-average shares outstanding .................. 4,327,297 4,392,162 4,385,094 4,377,056 4,367,800
Dilutive potential common shares ..................... 225,708 203,660 151,698 90,740 26,352
-------------------------------------------------------------------------
Adjusted weighted-average shares ..................... 4,553,005 4,595,822 4,536,792 4,467,796 4,394,152
<CAPTION>
(in thousands)
At December 31 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets ............................................ $ 391,840 $ 374,210 $ 345,747 $ 354,956 $ 333,180
Earning assets .......................................... 357,683 327,942 305,911 314,089 298,385
Deposits ................................................ 342,357 328,806 303,183 317,601 301,337
Shareholders' equity .................................... 42,221 39,349 35,808 31,903 27,146
<CAPTION>
For the years ended December 31 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected financial ratios:
Net income to:
Average total assets ................................. 1.91% 1.74% 1.79% 1.39% 1.26%
Average shareholders' equity ......................... 17.06% 16.45% 18.16% 15.79% 15.70%
Average shareholders' equity to average total assets .... 11.17% 10.60% 9.88% 8.79% 8.06%
Dividends declared per share to
net income per basic common share .................... 29.43% 25.71% 33.33% 23.58% 17.57%
</TABLE>
* Share and per share data have been reclassified to reflect the effect of
the 2-for-1 stock split, effective September 1, 1998.
1
<PAGE>
Management's Discussion and Analysis
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, 1998, as well as the financial
condition of the Corporation as of December 31, 1998 and 1997. The Bryn Mawr
Trust Company (the "Bank"), Tax Counsellors of Bryn Mawr, Inc. ("TCBM") and The
Bryn Mawr Trust Company (Jersey), Ltd. ("BMTC (Jersey)") are wholly-owned
subsidiaries of the Corporation. Insurance Counsellors of Bryn Mawr, Inc.
("ICBM") is a wholly-owned subsidiary of the Bank. This discussion should be
read in conjunction with the Corporation's consolidated financial statements
beginning on page 18.
Significant Items For 1998
- --------------------------
Stock Repurchase Program Offsets Potential Dilution of EPS
During 1997, the Corporation established a stock repurchase program, authorizing
management to repurchase up to 5% of the then outstanding common shares of the
Corporation, not to exceed $4,000,000 (the "Stock Repurchase Program"). During
1998, the Corporation repurchased 99,900 shares of the Corporation's common
stock, at a cost of $2,519,000. The acquisition of these shares more than offset
the dilutive effect of the issuance of 32,500 new common shares either through
the Corporation's stock option plan or the issuance of stock in payment of the
Corporation's directors' retainer for 1998. While net income grew by 12% over
1997's net income, both basic and diluted earnings per share were up 13% over
1997.
Growth of Non-interest Revenue Streams
A strategic goal of the Corporation continues to be providing its customer base
with financial services and products that are designed to meet the ever evolving
needs of the Corporation's customers. The addition of new financial services and
products creates 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. In January 1998, the
Bank established ICBM to provide insurance services and products to its
customers. During the fourth quarter of 1998, the Corporation established BMTC
(Jersey), providing offshore trust services to the Bank's Investment Management
and Trust customers. The Bank's Investment Management and Trust line of business
also expanded it's business base, growing assets under management by 26%, from
$1,666,472,000 at December 31, 1997 to $2,101,251,000 at December 31, 1998.
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 1998, compared to 1997. As residential
mortgage interest rates decreased during 1998, BMT Mortgage Company generated
significant refinancing opportunities in residential mortgage lending,
originating and selling $134,676,000 in residential mortgage loans in 1998, a
77% increase over $75,874,000 sold in 1997. This increase in loan sale activity
increased the related net gains and fees earned on these sales by $429,000 or
57% over similar revenues for 1997.
Exclusive of gains on the sale of other real estate owned ("OREO"), reported in
both periods, the growth in non-interest revenues resulted in an increase in the
percentage of non-interest revenues earned in 1998, compared to total revenues,
to 41% from 38% for 1997.
Dividend Increase
Based on a continued growth in record earnings, the Corporation increased its
quarterly dividend payment for 1998 by 33%, from $0.09 per share in 1997 to
$0.12 per share in 1998. These per share amounts have been restated to reflect
the effect of a 2-for-1 stock split, effective on September 1, 1998. The
Corporation's dividend payout ratio was 29.43% of basic earnings per share for
1998, compared to 25.71% for 1997.
Results Of Operations
- ---------------------
Overview
The Corporation reported a 12% increase in net income of $6,857,000 for the year
ended December 31, 1998, a record year for Corporation earnings. Net income for
1997 amounted to $6,130,000.
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 common shares added to the weighted-average
shares outstanding were 225,708 and 203,660 for 1998 and 1997, respectively.
Earnings per common share amounted to $1.58 in 1998, a 13% increase over $1.40
for 1997. Earnings per common share, assuming dilution were $1.51 and $1.34 for
1998 and 1997, respectively.
These record earnings results for 1998 were due primarily to a 20% increase in
Investment Management and Trust revenues over similar revenues for 1997, an 11%
increase in net interest income and, with the exception of OREO related
revenues, all
2
<PAGE>
non-interest revenue streams increased over their respective levels for 1997.
Net interest income grew $2,094,000 over 1997 levels. Exclusive of OREO related
revenues, total other income increased by $3,126,000 or 27% over similar
revenues for 1997. Other expenses increased $3,858,000 or 19% in 1998, compared
to 1997. This increase in other expense is partially due to the addition of both
TCBM and ICBM. TCBM operated for the last six months of 1997 and ICBM was not in
operation during 1997.
Return on average assets for the year increased to 1.91% from 1.74% in 1997,
while return on average equity for 1998 was 17.06% compared to 16.45% in 1997.
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 Investment Management and
Trust line of business and its Mortgage Banking line of business.
Following is a segmentation analysis of the results of operations for those
lines of business for 1998 and 1997:
TABLE 1 - Lines Of Business Analysis
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------
Mortgage All
(dollars in thousands) Banking Trust Banking Others Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income ....................... $20,103 $ -- $ 356 $ 3 $20,462
Less loan loss provision .................. 150 -- 0 0 150
---------------------------------------------------------------------
Net interest after
loan loss provision ...................... 19,953 0 356 3 20,312
Other income:
Fees for investment management
and trust services ...................... 0 9,272 -- -- 9,272
Service charges on
deposit accounts ........................ 1,169 -- -- -- 1,169
Other fees and
service charges ......................... 571 -- 1,209 -- 1,780
Net gain on sale of loans ................ 35 -- 783 -- 818
Gain on sale of other
real estate owned ....................... 224 -- -- -- 224
Other operating income ................... 631 -- -- 1,079 1,710
---------------------------------------------------------------------
Total other income ........................ 2,630 9,272 1,992 1,079 14,973
Other expenses:
Salaries--regular ........................ 6,489 2,863 417 520 10,289
Salaries--other .......................... 1,692 386 117 180 2,375
Fringe benefits .......................... 1,232 549 74 53 1,908
Occupancy ................................ 2,793 422 62 180 3,457
Other operating expenses ................. 5,003 898 400 618 6,919
---------------------------------------------------------------------
Total other expenses ...................... 17,209 5,118 1,070 1,551 24,948
---------------------------------------------------------------------
Segment profit (loss) ..................... $ 5,374 $ 4,154 $ 1,278 ($469) $10,337
=====================================================================
% of segment profit ....................... 52% 40% 12% -4% 100%
<CAPTION>
1997*
---------------------------------------------------------------------
Mortgage All
(dollars in thousands) Banking Trust Banking Others Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income ....................... $18,031 $ -- $ 337 $ -- $18,368
Less loan loss provision .................. 200 -- -- -- 200
---------------------------------------------------------------------
Net interest after
loan loss provision ...................... 17,831 0 337 0 18,168
Other income:
Fees for investment management
and trust services ...................... -- 7,698 -- -- 7,698
Service charges on
deposit accounts ........................ 1,124 -- -- -- 1,124
Other fees and
service charges ......................... 503 -- 875 -- 1,378
Net gain on sale of loans ................ 43 -- 466 -- 509
Gain on sale of other
real estate owned ....................... 379 -- -- -- 379
Other operating income ................... 528 -- 4 370 902
---------------------------------------------------------------------
Total other income ........................ 2,577 7,698 1,345 370 11,990
Other expenses:
Salaries--regular ........................ 5,858 2,415 235 96 8,604
Salaries--other .......................... 1,347 215 93 -- 1,655
Fringe benefits .......................... 1,237 501 45 8 1,791
Occupancy ................................ 2,543 361 39 223 3,166
Other operating expenses ................. 4,730 733 233 166 5,862
---------------------------------------------------------------------
Total other expenses ...................... 15,715 4,225 645 493 21,078
---------------------------------------------------------------------
Segment profit (loss) ..................... $ 4,693 $ 3,473 $ 1,037 ($123) $ 9,080
=====================================================================
% of segment profit ....................... 52% 38% 11% -1% 100%
</TABLE>
Bryn Mawr Bank Corporation, Tax Counsellors of Bryn Mawr, Inc., Insurance
Counsellors of Bryn Mawr, Inc. and The Bryn Mawr Trust Company (Jersey), Ltd.
have been aggregated in All Other.
*Reclassified for comparative purposes.
The table reflects operating profits of each line of business before income
taxes.
Each significant business segment reported growth in segment profits for 1998,
compared to 1997. There was a strong increase in both Investment Management and
Trust segment profits and the Mortgage Banking line's segment profits in 1998,
compared to 1997, up 20% and 23%, respectively. The Banking line's segment
profits grew by 15% from 1997 levels. The Banking segment's percentage of
segment profits remained level at 52% for both 1998 and 1997. Investment
Management and Trust's percentage of segment profit increased from 38% in 1997
to 40% in 1998. The Mortgage Banking segment's share of segment profits
increased from 11% in 1997 to 12% in 1998.
Banking Line of Business
The Bank's average outstanding earning assets of $328,605,000 increased 4% from
$315,548,000 for 1997. Average outstanding loans grew by 6% in 1998. The largest
increase in average outstanding loans occurred in commercial and industrial
loans, up $13,713,000 or 19% over 1997 average balances. Commercial mortgage
loans grew by $10,589,000 or 32% over 1997 average balances and average
outstanding construction loans rose by $4,725,000 or 54% over similar average
outstanding balances for 1997. Offsetting these increases were decreases in the
average
3
<PAGE>
outstanding balances of the Bank's consumer loan portfolio, down $9,326,000 or
8% from 1997's average outstanding balances and residential mortgage loans, down
by $4,179,000 or 24%. Lower consumer loan demand, caused by increased
competition from automobile manufacturers for new automobile loans was primarily
responsible for the reduction in average outstanding loans in the consumer loan
portfolio in 1998, while increased sales of residential mortgage loans to the
secondary mortgage loan market was responsible for the decrease in average
outstanding residential mortgage loans. The average outstanding balances of
federal funds sold decreased by 8% in 1998 compared to 1997 levels. Average
outstanding investments decreased by 5% for 1998, compared to 1997. Average
outstanding total deposits increased 2% in 1998 compared to 1997. The largest
increase occurred in the Bank's low costing NOW account balances and non-
interest bearing demand deposits, up $10,968,000 or 15% and $6,697,000 or 9%,
respectively. Partially offsetting these increases was a $12,289,000 or 17%
decrease in the average outstanding balances of higher costing certificates of
deposit ("CDs"). Average outstanding savings deposits increased 3% or
$1,252,000. The change in the mix of average outstanding deposits, away from
higher costing CDs into low costing NOW and savings deposits and non-interest
bearing demand deposits, led to a decrease in interest expense and an increase
in the net interest margin to 5.99% in 1998 from 5.59% for 1997. An expanded
discussion of net interest income follows under the section entitled "Net
Interest Income."
Other income increased by 2% in 1998 compared to 1997. Exclusive of OREO gains,
reported in each period, total other income for the Banking segment increased by
9%.
Total other expenses of the Banking line of business increased 10% in 1998
compared to 1997 levels. Overall, the operating profits of the Banking line of
business increased 15% in 1998 compared to 1997.
Investment Management and Trust Line of Business
The Bank's Investment Management and Trust Division reported a 20% increase in
segment profit for 1998 compared to 1997 levels. Total Investment Management and
Trust fee income rose 20% in 1998. This was primarily due to an 26% increase in
the market value of assets managed, from $1,666,472,000 at December 31, 1997, to
$2,101,251,000 as of December 31, 1998.
Other expenses of the Investment Management and Trust line of business increased
21% in 1998 over 1997 levels. The primary reasons for this increase in expenses
were required staffing additions during 1998 and an increase in the Investment
Management and Trust Division's incentive compensation, associated with the
acquisition of new business and directly related to the Division's overall
profitability. The Trust incentive compensation amounted to $386,000 for 1998,
compared to $215,000 for 1997. Exclusive of the cost of the Trust incentive in
each period, Investment Management and Trust Division expenses increased 18% in
1998, compared to 1997.
Mortgage Banking Line of Business
The segment profit of the Bank's Mortgage Banking line of business increased 23%
in 1998 compared to 1997. During 1998, mortgage interest rates decreased enough
to make refinancing attractive to borrowers. In 1998, the Mortgage Banking line
of business had a 77% increase in the volume of loans sold in the secondary
mortgage market, partially offset by a 12 basis point decrease in the yield on
sales, compared to 1997 levels and yields. The result was a 57% increase in loan
fees and net gains on sales. This is the reason for the 23% increase in
operating profit for the Mortgage Banking line of business. As of December 31,
1998, the Bank serviced $290,675,000 in residential mortgage loans for others,
compared to $234,061,000 in loans serviced for others at year-end 1997.
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) 1998 1997
-----------------------
Volume of loans sold .................... $134,676 $ 75,874
Loan fees and net gains on sales ........ $ 1,187 $ 758
Yield on sales .......................... .88% 1.00%
Bryn Mawr Bank Corporation
The Corporation is a one-bank holding company, generating intercompany revenues
from the rental of Corporation owned properties to the Bank. Expenses are
primarily of an administrative nature. In 1998, the Corporation incurred
expenses directly related to the start up or acquisition of new subsidiaries,
both in 1998 and planned for 1999. These additional costs are the primary reason
for the Corporation's loss of $291,000 for 1999 compared to $81,000 for 1997.
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 CPAs (the "Tax Professionals"),
having significant tax planning and preparation background and formerly employed
by a "Big Five" 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 first full
year of operation, TCBM exceeded the revenue goals established in the profit
sharing agreement, adding $10,000 to the Corporation's net income for 1998,
compared to a break even for 1997.
4
<PAGE>
Insurance Counsellors of Bryn Mawr, Inc.
In January 1998, the Bank established a new wholly-owned subsidiary, ICBM, to
enable the Bank to offer insurance related products and services to its customer
base. ICBM offers a full line of life, property and casualty and commercial
lines to its customer base. For its first year of operation, ICBM had a loss of
$26,000.
The Bryn Mawr Trust Company (Jersey), Ltd.
In September 1998, the Corporation established a new wholly-owned subsidiary,
BMTC (Jersey), to enable the Corporation to offer alternative off-shore
investing opportunities through the Bank's Investment Management and Trust
Division. BMTC (Jersey) had a loss of $8,000 for 1998.
Net Interest Income
A 5% or $1,141,000 increase in interest income, combined with a 14% or $953,000
decrease in interest expense from year to year resulted in an overall increase
in net interest income of 11% or $2,094,000. Average earning assets grew 4% in
1998, compared to 1997 levels. Higher yielding average outstanding loan balances
grew by 6%. The average outstanding balances of investments and federal funds
sold decreased by 5% and 8%, respectively. Total average deposits increased 2%.
The largest increase occurred in the Bank's lower costing average outstanding
NOW balances, up by 15%. Non-interest bearing demand deposits increased by 9%,
while average savings deposits increased by 3%. This growth in average low cost
and non-interest bearing deposits was partially offset by a 17% decrease in
outstanding CD balances for 1998, compared to 1997 levels. This change in the
mix of average deposit balances, away from higher costing CDs into lower costing
NOW and demand deposits is primarily responsible for a 30 basis point decrease
in the average cost of funds for 1998, compared to 1997. This decrease in the
cost of funds was directly responsible for the Bank's net interest margin,
defined as net interest income exclusive of loan fees as a percentage of average
earning assets, increasing from 5.59% for 1997 to 5.99% for 1998.
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 $769,000, $742,000 and $789,000 in 1998, 1997 and 1996 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>
1998 1997
---------------------------------------------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(dollars in thousands) Balance Expense Paid Balance Expense Paid
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks ................... $ 19,065 $ -- --% $ 23,329 $ -- --%
Interest-bearing deposits with other banks* 1,345 68 5.1 176 8 4.5
Federal funds sold* ....................... 15,665 824 5.3 16,964 935 5.5
Investment securities available for sale:
Taxable* .............................. 31,760 1,880 5.9 32,693 1,988 6.1
Tax-exempt* ........................... 4,953 224 4.5 5,868 283 4.8
------------------------- -------------------------
Total investment securities .............. 36,713 2,104 5.7 38,561 2,271 5.9
------------------------- -------------------------
Loans* .................................... 274,882 23,441 8.5 259,847 22,083 8.5
Less allowance for loan losses ............ (4,088) -- -- (4,247) -- --
------------------------- -------------------------
Net loans ................................ 270,794 23,441 8.7 255,600 22,083 8.6
Other assets .............................. 16,278 -- -- 16,807 -- --
------------------------- -------------------------
Total assets ............................. $ 359,860 $ 26,437 -- $ 351,437 $ 25,297 --
------------------------- -------------------------
Liabilities:
Demand deposits, noninterest-bearing ...... $ 82,773 $ -- --% $ 76,076 $ -- --%
Savings deposits .......................... 169,785 2,924 1.7 158,752 3,058 1.9
Time deposits ............................. 61,503 3,052 5.0 73,792 3,871 5.2
Federal funds purchased ................... 18 -- -- 5 -- --
Other liabilities ......................... 5,595 -- -- 5,550 -- --
------------------------- -------------------------
Total liabilities ........................ 319,674 5,976 -- 314,175 6,929 --
Shareholders' equity ...................... 40,186 -- -- 37,262 -- --
------------------------- -------------------------
Total liabilities and shareholders' equity $ 359,860 $ 5,976 -- $ 351,437 $ 6,929 --
------------------------- -------------------------
Total earning assets* .................... $ 328,605 -- -- $ 315,548 -- --
Interest income to earning assets ......... -- -- 8.0 -- -- 8.0
Interest expense to earning assets ........ -- -- 1.8 -- -- 2.2
Net yield on interest-earning assets ..... -- -- 6.2 -- -- 5.8
Average effective rate paid on interest-
bearing liabilities ...................... -- -- 2.6 -- -- 3.0
<CAPTION>
1996
--------------------------------------------------------
Average
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------------------------
<S> <C> <C> <C>
Assets:
Cash and due from banks ................... $ 21,942 $ -- --%
Interest-bearing deposits with other banks* 94 4 4.3
Federal funds sold* ....................... 4,660 257 5.5
Investment securities available for sale:
Taxable* .............................. 36,680 2,157 5.9
Tax-exempt* ........................... 8,142 406 5.0
----------------------------------
Total investment securities .............. 44,822 2,563 5.7
----------------------------------
Loans* .................................... 251,679 21,513 8.5
Less allowance for loan losses ............ (4,017) -- --
----------------------------------
Net loans ................................ 247,662 21,513 8.7
Other assets .............................. 17,539 -- --
----------------------------------
Total assets ............................. $ 336,719 $ 24,337 --
----------------------------------
Liabilities:
Demand deposits, noninterest-bearing ...... $ 73,034 $ -- --%
Savings deposits .......................... 161,577 3,187 2.0
Time deposits ............................. 60,930 3,203 5.3
Federal funds purchased ................... 1,824 100 5.5
Other liabilities ......................... 6,085 -- --
----------------------------------
Total liabilities ........................ 303,450 6,490 --
Shareholders' equity ...................... 33,269 -- --
----------------------------------
Total liabilities and shareholders' equity $ 336,719 $ 6,490 --
----------------------------------
Total earning assets* .................... $ 301,255 -- --
Interest income to earning assets ......... -- -- 8.1
Interest expense to earning assets ........ -- -- 2.2
Net yield on interest-earning assets ..... -- -- 5.9
Average effective rate paid on interest-
bearing liabilities ...................... -- -- 2.9
</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 increases (decreases) in fees on loans of
$27,000 in 1998, ($47,000) in 1997, and ($9,000) in 1996.
TABLE 4 - Rate/Volume Analyses
<TABLE>
<CAPTION>
(in thousands) 1998 vs. 1997 1997 vs. 1996
---------------------------------------------------------------------------------------
Increase / (decrease) Volume Rate Total Volume Rate Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest-bearing deposits
with other banks ............... $ 59 $ 1 $ 60 $ 4 $ -- $ 4
Federal funds sold .............. (75) (36) (111) 678 -- 678
Investment securities
available for sale:
Taxable ...................... (50) (58) (108) (241) 72 (169)
Tax-exempt ................... (42) (17) (59) (108) (15) (123)
Loans ........................... 1,358 0* 1,358 830 (260)* 570
---------------------------------------------------------------------------------------
Total interest income ........... 1,250 (110) 1,140 1,163 (203) 960
---------------------------------------------------------------------------------------
Interest expense:
Savings deposits ................ 199 (333) (134) (33) (96) (129)
Time deposits ................... (665) (154) (819) 725 (57) 668
Federal funds purchased ......... -- -- -- (100) -- (100)
---------------------------------------------------------------------------------------
Total interest expense .......... (466) (487) (953) 592 (153) 439
---------------------------------------------------------------------------------------
Interest differential ............ $ 1,716 $ 377 $ 2,093 $ 571 $ (50) $ 521
=======================================================================================
</TABLE>
* Included in the loan rate variance was a decrease in interest income
related to non-performing loans of $230,000 and $154,000 in 1998 and 1997,
respectively. The variances due to rate include the effect of nonaccrual
loans because no interest is earned on such loans.
The 5% growth in interest income for 1998 was attributable to a 4% increase in
average earning assets from $315,548,000 for 1997 to $328,605,000 for 1998. The
yield on average outstanding earning assets remained level for 1998, compared to
1997, at 8.0% for both periods. The average yield on loans also remained level
in 1998, when compared to 1997, at 8.5%. The average yield on federal funds sold
decreased 20 basis points, to 5.3% for 1998, compared to 5.5% for 1997. The
yield on the investment portfolio decreased by 20 basis points from 5.9% in 1997
to 5.7% in 1998. This is due to the maturity of older, higher yielding
investments in the portfolio.
The growth in interest income attributable to volume was the result of a 6%
increase in average outstanding loans. Partially offsetting this increase in the
volume variance was a reduction in interest income related to the rate variance.
An increase in commission and fee income, directly related to increased
residential loan sale activity in 1998, also contributed to a 5% increase in
total interest income in 1998 over 1997 levels.
As of December 31, 1998, outstanding loans increased 5%. The most significant
loan growth came in commercial and industrial loans, which grew by 18% year-end
to year-end. Permanent mortgage loans, including both commercial mortgage loans
and residential mortgage loans increased by 8%. Commercial mortgage loans grew
by 29%, while residential mortgage loan balances increased by 2%. Construction
loan outstanding balances decreased 3%. A 12% decrease in outstanding consumer
loans is due primarily to a 12% decrease in short-term indirect automobile loan
balances at year-end 1998 compared to year-end 1997. Increased competition from
automobile manufacturers' financing facilities and incentives was the primary
reason for this decrease.
Average deposits increased $5,441,000 or 2% during 1998. During the first
quarter of 1998, the remainder of the Premier CDs, first issued during the first
quarter of 1996 at highly competitive rates of interest, matured. The Bank did
not offer a premium rate for renewal of these CDs which contributed to a 17%
decrease in average outstanding CD balances in 1998, compared to 1997 average
outstanding CD balances. Partially a reaction to banking consolidations in the
Bank's market area and the acquisition of new commercial and trust accounts, the
Bank's average NOW accounts grew by 15%, while non-interest bearing demand
deposits and average outstanding savings deposits increased by 9% and 3%,
respectively. The change in the mix of average outstanding deposits, decreasing
higher costing CD balances and increasing lower and no cost balances was
primarily responsible for the 14% decrease in interest expense for 1998. The
cost of funds for the Bank averaged 1.9% for 1998 compared to 2.2% for 1997.
Loan Loss Provision
The Bank provided a loan loss provision of $150,000 for 1998, compared to
$200,000 for 1997. The allowance for possible loan losses was $4,100,000 and
$4,074,000 as of December 31, 1998 and 1997, respectively. Due to the low level
of delinquencies during 1998, amounting to 0.46% of outstanding loans as of
December 31, 1998, and the level of the loan loss reserve, management deemed it
appropriate to lower the provision for loan losses during 1998. The ratio of the
loan loss reserve to nonperforming loans was 832% and 349% as of December 31,
1998 and 1997, respectively. Nonperforming loans amounted to $493,000 at
December 31, 1998, a 58% decrease from $1,169,000 at December 31, 1997. The
allowance for possible loan losses, as a percentage of outstanding loans, was
1.46% as of December 31, 1998, compared to 1.52% as of December 31, 1997. Bank
management determined that the 1998 loan loss provision was sufficient to
maintain an adequate level of the allowance for possible loan losses during
1998.
6
<PAGE>
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
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses:
Balance, January 1 ....................... $ 4,074 $ 4,182 $ 3,652 $ 3,618 $ 3,601
-------------------------------------------------------------------------------
Charge-offs:
Commercial and industrial ............... (64) (196) (84) (527) --
Real estate--construction ............... -- -- -- -- (229)
Real estate--mortgage ................... -- -- (4) (8) (69)
Consumer ................................ (179) (237) (180) (234) (365)
-------------------------------------------------------------------------------
Total charge-offs ....................... (243) (433) (268) (769) (663)
-------------------------------------------------------------------------------
Recoveries:
Commercial and industrial ............... 100 102 404 236 115
Real estate--construction ............... -- -- -- -- --
Real estate--mortgage ................... -- -- 8 13 20
Consumer ................................ 19 23 36 54 45
-------------------------------------------------------------------------------
Total recoveries ....................... 119 125 448 303 180
-------------------------------------------------------------------------------
Net recoveries / (charge-offs) ........ (124) (308) 180 (466) (483)
Provision for loan losses ................ 150 200 350 500 500
-------------------------------------------------------------------------------
Balance, December 31 ..................... $ 4,100 $ 4,074 $ 4,182 $ 3,652 $ 3,618
===============================================================================
Net recoveries / (charge-offs) to
average loans ........................... (0.05)% (0.12)% (0.07)% (0.21)% (0.24)%
</TABLE>
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,
1998 1997 1996 1995
----------------------------------------------------------------------------------------
% Loans % Loans % Loans % Loans
to Total to Total to Total to Total
(dollars in thousands) Loans Loans Loans Loans
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial and industrial .......... $ 427 31.8% $ 316 28.1% $ 483 28.8% $1,295 28.7%
Real estate -- construction ........ 81 4.7 1,111 5.1 751 2.9 648 3.8
Real estate -- mortgage ............ 161 39.3 184 38.2 289 36.9 259 36.4
Consumer ........................... 301 24.2 465 28.6 609 31.4 619 31.1
Unallocated ........................ 3,130 -- 1,998 -- 2,050 -- 831 --
----------------------------------------------------------------------------------------
Total ........................ $4,100 100.0% $4,074 100.0% $4,182 100.0% $3,652 100.0%
========================================================================================
<CAPTION>
1994
-----------------------------
% Loans
to Total
(dollars in thousands) Loans
-----------------------------
<S> <C> <C>
Balance at end of period applicable to:
Commercial and industrial ................. $1,289 23.9%
Real estate -- construction ............... 273 2.1
Real estate -- mortgage ................... 332 40.4
Consumer .................................. 680 33.6
Unallocated ............................... 1,044 --
-----------------------------
Total ............................... $3,618 100.0%
=============================
</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 12 for further discussion of the Corporation's loan review
process.
Other Income
The following table details other income for the years ended December 31, 1998
and 1997, and the percent change from year to year:
TABLE 7 - Other Income
(dollars in thousands) 1998 1997 % Change
------------------------------
Fees for Trust services .................. $ 9,272 $ 7,698 20%
Service charges on deposit accounts ...... 1,169 1,124 4
Other fees and service charges ........... 1,780 1,378 29
Net gain on sale of loans ................ 818 509 61
Gain on sale of other real estate owned .. 224 379 (41)
Other operating income ................... 1,457 661 120
------------------------------
Total other income ....................... $14,720 $11,749 25%
In addition to net interest income, the Bank's three operating segments, as well
as TCBM and ICBM, generate various streams of fee-based income, including
Investment Management and Trust income, service charges on deposit accounts,
loan servicing income and gains/losses on loan sales.
As discussed in the "Lines of Business" section on pages 3, 4 and 5, the
increase in other income in 1998 from 1997 levels was primarily a result of an
increase in fees for Investment Management and Trust services, as well as
increased other fees and service charges and gains on sale of loans, partially
offset by lower gains on the sale of OREO.
Trust income grew 20% from year to year, primarily due to the acquisition of new
Trust accounts during 1998 and an increase
7
<PAGE>
in the market value of Trust assets under management, which grew by 26%, to
$2,101,251,000 at year-end 1998, up from $1,666,472,000 as of December 31, 1997.
As discussed in the "Mortgage Banking Line of Business" section, the 61%
increase in gains on the sale of loans was directly attributable to an 77%
increase in the volume of loans sold in 1998 compared to 1997, partially offset
by an 12 basis point decrease in the yield realized on the sale of loans in 1998
compared to 1997. This residential loan sale activity is also primarily
responsible for a 29% increase in other fees and service charges in 1998,
compared to 1997.
Gains on the sale of OREO decreased by 41%. This is a direct result of the Bank
disposing of the majority of its OREO prior to 1998.
Other operating income increased 120% in 1998 from 1997 levels, primarily due to
new sources of fee income from TCBM and ICBM. The net increase in revenues from
these new ventures amounted to $709,000 from 1997 to 1998. Exclusive of these
new revenue streams, other operating income increased by 17% for 1998, compared
to 1997.
Other Expenses
The following table details other expenses for the years ended December 31, 1998
and 1997, and the percent change from year to year:
TABLE 8 - Other Expenses
1998 1997 % Change
--------------------------------------
Salaries-regular .................. $10,289 $ 8,604 20%
Salaries-other .................... 2,375 1,655 44
Employee benefits ................. 1,908 1,791 7
Occupancy expense ................. 1,392 1,365 2
Furniture, fixtures and equipment.. 1,817 1,565 16
Advertising ....................... 1,283 1,069 20
Computer processing ............... 569 584 (3)
Stationery and supplies ........... 354 322 10
Professional fees ................. 811 822 (1)
Insurance ......................... 213 188 13
Merchant credit card processing ... 466 390 19
Net cost of operation of
other real estate owned .......... 7 9 (22)
Other operating expenses .......... 3,211 2,473 30
--------------------------------------
Total other expenses ............. $24,695 $20,837 19%
======================================
Other expenses increased for the year ended December 31, 1998, by 19% compared
to 1997. Regular salaries, consisting of regular, part time and overtime salary
expense, and the largest component of other expenses, rose 20%, due primarily to
merit increases and staffing additions, including the establishment of TCBM in
July 1997 and ICBM in January 1998. As of December 31, 1998, the Corporation's
consolidated full-time equivalent staffing level was 239.5 compared to 220.0 as
of December 31, 1997.
Other salaries, which primarily consist of incentive compensation, increased 44%
from 1997 to 1998. The $720,000 increase was primarily related to incentive
based compensation, tied to the overall profitability of the Corporation and
specific lines of business. The Bank's overall incentive salaries increased
$388,000 or 27%. A Trust incentive related to acquisition of new Trust business
increased by $171,000 or 80%, as Trust new business referrals grew during 1998.
Other incentive payments, primarily to TCBM under the revenue sharing agreement
between BMBC and TCBM, increased $180,000. Commissions paid to mortgage
originators decreased $21,000 or 98% in 1998. 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 accounted for $718,000 of the
$720,000 increase in other salary expense from 1997 to 1998.
Employee benefit costs increased $117,000 or 7% in 1998 over 1997 levels.
Decreases of $242,000 in actuarially computed post-retirement benefits costs for
1998 compared to 1997 and $170,000 in the cost of the Corporation's pension
expense were offset by increases in social security taxes expense of $398,000,
the cost of medical and life insurance increasing $111,000 and the cost of the
Corporation's Supplemental Employee Retirement Plan increasing $66,000. An
amendment to the Bank's post-retirement benefit plan, utilizing alternative
resources for providing medical benefits to retirees, was the reason for the
reduction in post-retirement benefits expense in 1998. Strong performance of the
pension plan's assets was primarily responsible for the reduction in pension
expense for 1998, compared to 1997.
Occupancy expenses increased $27,000 or 2% from 1997 to 1998. During 1997, the
Corporation prepaid a mortgage loan on one of its properties, thereby reducing
interest on mortgage loans by $60,000 from 1997 to 1998. There were no other
significant changes in occupancy expense from 1997 to 1998.
Furniture, fixtures and equipment expense increased by $252,000 or 16% in 1998,
compared to 1997. Depreciation expense for the Bank accounted for the largest
increase, up $167,000, reflecting the effect of capital improvements made during
1998. Exclusive of the increase in depreciation expense, the cost of furniture,
fixtures and equipment expense increased 10% from 1997 to 1998.
Advertising increased $214,000 or 20%, reflecting both the establishment of new
marketing initiatives and the continued commitment to both print and electronic
media as a means of increasing the public's awareness of the Bank's array of
products and services.
The cost of merchant credit card processing increased $76,000 or 19% as the
volume of merchant processing increased. These fees are more that offset by
related revenues, included in other operating income.
8
<PAGE>
Stationery and supplies expense increased $32,000 or 10% in 1998, compared to
1997, due primarily to additional costs in 1998, associated with the production
of new product brochures as well as letterhead for the new subsidiary companies,
TCBM and ICBM.
Insurance expense increased by $25,000 or 13%. 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. FDIC insurance premiums remained level from 1997 to 1998, while the
Bank's business insurance premiums increased $24,000 during 1998, compared to
similar premiums in 1997. Expanded policy limits and the addition of TCBM and
ICBM are responsible for this increase.
Other operating expenses increased $738,000 or 30% from 1997 to 1998. Included
in 1998's expense were expenses related to the acquisition of new subsidiaries,
amounting to $161,000, which were not incurred during 1997. Other increases are
as follows. Appraisal fees, directly related to the increase in mortgage banking
activity, discussed previously, increased $130,000 over 1997 levels. The cost of
programming and related services increased by $79,000, as projects related to
the Corporation's Year 2000 ("Y2K") initiative were implemented. Travel and
entertainment costs grew by $70,000, in a continued effort to acquire new
business relationships and to support both the community and existing business
relationships. Telephone expense increased $64,000 over similar expenses for
1997. During 1998, the Bank converted to a new telephone system, incurring
additional expense in the process. The cost of hiring temporary help also rose
by $45,000.
Income Taxes
The Corporation's provision for federal income taxes is based on the statutory
tax rate of 34%. Federal income taxes for 1998 were $3,480,000, compared to
$2,950,000 for 1997. This represents an effective tax rate of 33.7% and 32.5%
for 1998 and 1997, 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
The entire investment portfolio is classified as available for sale. Therefore,
the investment portfolio was carried at its estimated market value of
$50,976,000 and $40,666,000 as of December 31, 1998 and 1997, respectively. The
amortized cost of the portfolio as of December 31, 1998, was $50,824,000,
resulting in net unrealized gains of $152,000. The amortized cost of the
portfolio at December 31, 1997, was $40,573,000, resulting in net unrealized
gains of $93,000.
The maturity distribution and weighted average yields on a fully tax-equivalent
basis of investment securities at December 31, 1998, are as follows:
TABLE 9 - Investment Portfolio
<TABLE>
<CAPTION>
Maturing Maturing Maturing
during from 2000 from 2004 Maturing
(dollars in thousands) 1999 through 2003 through 2008 after 2008 Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Obligations of the U.S. Government
and agencies:
Book value ................................ $ 25,810 $ 19,101 $ -- $ -- $ 44,911
Weighted average yield .................... 5.5% 5.7% -- -- 5.7%
State and political subdivisions:
Book value ................................ 1,391 2,834 $ 449 -- 4,674
Weighted average yield .................... 7.2% 6.6% 6.5% -- 6.6%
Other investment securities:
Book value ................................ -- -- -- 1,391 1,391
Weighted average yield .................... -- -- -- 6.2% 6.2%
-------------------------------------------------------------------------
Total book value ............................. $ 27,201 $ 21,935 $ 449 $ 1,391 $ 50,976
Weighted average yield ....................... 5.8% 5.8% 6.5% 6.2% 5.8%
</TABLE>
In addition to $11,415,000 in maturities, during 1998, $15,002,000 in municipal
bonds were called. These increases in available funds, combined with an increase
in total deposits for 1998 of $13,551,000, prompted Bank management to purchase
$36,683,000 in U.S. Government or U.S. Government Agency securities. Those
transactions were primarily responsible for the $10,310,000 or 25% increase in
the investment portfolio from December 31, 1997, to December 31, 1998. At
December 31, 1998, approximately 88% 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.
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
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans:
Permanent mortgage loans ........ $110,535 $102,474 $ 95,588 $ 85,752 $ 92,395
Construction loans .............. 13,204 13,647 7,639 8,905 4,884
Commercial and industrial loans .... 89,368 75,474 74,688 67,507 54,631
Consumer loans ..................... 68,078 76,963 81,512 73,189 76,828
--------------------------------------------------------------------------------
Total ......................... $281,185 $268,558 $259,427 $235,353 $228,738
================================================================================
</TABLE>
The maturity distribution of the loan portfolio, excluding loans secured by
one-family residential property and consumer loans, at December 31, 1998, is
shown below.
<TABLE>
<CAPTION>
Maturing Maturing
during from 2000 Maturing
(in thousands) 1999 through 2003 after 2003 Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural ....... $ 52,979 $ 19,693 $ 16,696 $ 89,368
Real estate--construction ..................... 8,564 4,117 523 13,204
Real estate--other ............................ 1,374 12,780 36,002 50,156
--------------------------------------------------------------------
Total ........................................ $ 62,917 $ 36,590 $ 53,221 $152,728
====================================================================
Interest sensitivity on the above loans:
Loans with predetermined rates ............... $ 7,480 $ 28,815 $ 13,231 $ 49,526
Loans with adjustable or floating rates ...... 55,437 7,775 39,990 103,202
--------------------------------------------------------------------
Total ........................................ $ 62,917 $ 36,590 $ 53,221 $152,728
====================================================================
</TABLE>
There are no scheduled prepayments on the loans included in the maturity
distributions.
9
<PAGE>
TABLE 11 - Loan Portfolio and Non-Performing Asset Analysis
<TABLE>
<CAPTION>
Loan Portfolio Nonperforming Assets
-----------------------------------------------------------------------------------------
Past Due Past Due Non- Other Total Non-
30 to 89 90 Days Total Performing Real Estate Performing
(in thousands) Current Days or More Loans Loans * Owned ** Assets
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Permanent mortgage loans:
Residential .......................... $ 15,786 $ 122 $ -- $ 15,908 $ -- $ 50 $ 50
Commercial ........................... 49,772 31 353 50,156 353 221 574
Home equity .......................... 44,329 58 84 44,471 84 -- 84
-----------------------------------------------------------------------------------------
Total permanent mortgage loans ..... 109,887 211 437 110,535 437 271 708
Construction mortgage loans:
Residential .......................... 10,774 -- -- 10,774 -- -- --
Commercial ........................... 2,430 -- -- 2,430 -- -- --
Total construction mortgage loans .. 13,204 -- -- 13,204 -- -- --
-----------------------------------------------------------------------------------------
Total real estate loans ............ 123,091 211 437 123,739 437 271 708
Commercial and industrial loans .......... 89,098 270 -- 89,368 -- -- --
-----------------------------------------------------------------------------------------
Total commercial and industrial
loans ............................. 89,098 270 -- 89,368 -- -- --
-----------------------------------------------------------------------------------------
Consumer loans:
Direct ............................... 8,296 36 10 8,342 10 -- 10
Indirect ............................. 57,641 260 46 57,947 46 -- 46
CreditLine ........................... 1,771 18 -- 1,789 -- -- --
-----------------------------------------------------------------------------------------
Total consumer loans ............... 67,708 314 56 68,078 56 -- 56
Unallocated reserve for loan loss ........ -- -- -- -- -- -- --
=========================================================================================
Total .............................. $ 279,897 $ 795 $ 493 $281,185 $ 493 $ 271 $ 764
</TABLE>
Loan Loss
Reserve
-------------
Reserve for
Loan Loss
Allocation
-------------
Real estate loans:
Permanent mortgage loans:
Residential .......................... $ --
Commercial ........................... --
Home equity .......................... --
-------------
Total permanent mortgage loans ..... 161
Construction mortgage loans:
Residential .......................... --
Commercial ........................... --
Total construction mortgage loans .. 81
-------------
Total real estate loans ............ 242
Commercial and industrial loans .......... --
-------------
Total commercial and industrial
loans ............................. 427
-------------
Consumer loans:
Direct ............................... --
Indirect ............................. --
CreditLine ........................... --
-------------
Total consumer loans ............... 301
Unallocated reserve for loan loss ........ 3,130
=============
Total .............................. $ 4,100
* 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 $493,000
includes the $493,000 in loans past due 90 days or more, on which certain
borrowers have paid interest regularly. There are no loans less than 90 days
delinquent.
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, 1998 increased 5% to $281,185,000 from $268,558,000
as of December 31, 1997.
The Bank's commercial and industrial lending had the largest growth in
outstanding loan balances from year to year. Commercial and industrial loan
balances grew $13,894,000 or 18% from $75,474,000 at December 31, 1997 to
$89,368,000 at December 31, 1998. Increased business development in the Bank's
commercial lending market area, the addition of new, experienced commercial
lenders and the emergence of new commercial lending relationships, partially the
result of recent banking mergers in the Bank's market area, are the reasons for
this strong growth.
Permanent mortgage loans, which consist of commercial and residential mortgages
as well as home equity loans, increased by 8% or $8,061,000 during 1998, from
$102,474,000 at December 31, 1997, to $110,535,000 at December 31, 1998. This
growth was due primarily to an $11,182,000 or 29% increase in commercial
mortgage loans. Home equity loans decreased by $3,408,000 or 7%, and residential
mortgage loans increased by $287,000 or 2%.
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 $8,885,000 or 12%,
from $76,963,000 at December 31, 1997, to $68,078,000 at December 31, 1998. The
largest decrease occurred in the outstanding balances of the indirect automobile
paper. Outstanding indirect automobile paper balances decreased $8,037,000 or
12% from $65,069,000 at December 31, 1997, to $57,032,000 at December 31, 1998.
Competition from automobile manufacturers' credit facilities and lower costing
financing from home equity loans are the primary reasons for this decrease.
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, 1996,
1997 and 1998, 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, 1998, the construction
loan portfolio decreased by $443,000 or 3%, from $13,647,000 at December 31,
1997, to $13,204,000 at December 31, 1998.
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 4% to $342,357,000 at December 31, 1998, from
$328,806,000 at year end 1997. A more meaningful measure of deposit change is
average daily balances. As illustrated in Table 12, average daily deposit
balances increased 2%. During 1997, the Bank renewed its Premier CD program for
an additional year, maturing during the first quarter of 1998. As a part of its
liquidity plan for 1998, the Bank chose not to offer a premium rate of interest
for the renewal of the Premier CDs.
10
<PAGE>
Average CD balances decreased by 17% from 1997 to 1998. Offsetting this decrease
were 15% and 9% increases in the respective average outstanding balances of low
costing NOW accounts and non-interest bearing demand deposit accounts. It is
believed that bank consolidation within the Bank's market area, as well as the
acquisition of new deposit accounts through the growth of new lending and
Investment Management and Trust relationships, are primarily responsible for
this growth in low costing deposits. As previously discussed, this change in the
mix of deposits, away from higher costing CDs, into lower costing NOW accounts
and demand deposit accounts is primarily responsible for a 30 basis point
decrease in the Bank's overall cost of funds and a 40 basis point increase in
the Bank's net interest margin for 1998, compared to 1997.
The following table presents the average balances of deposits and the percentage
change for the years indicated:
TABLE 12 - Average Daily Balances of Deposits
<TABLE>
<CAPTION>
% Change % Change
1998 vs. 1997 vs.
(dollars in thousands) 1998 1997 1997 1996 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand deposits, non-
interest-bearing $ 82,773 $ 76,076 8.8 $ 73,034 4.2
---------------------------------------------------------------
Market rate accounts 44,325 45,903 (3.4) 49,451 (7.2)
NOW accounts ....... 85,317 73,958 15.4 70,549 4.8
Regular savings .... 40,143 38,891 3.2 41,577 (6.5)
---------------------------------------------------------------
169,785 158,752 6.9 161,577 (1.7)
---------------------------------------------------------------
Time deposits ...... 61,503 73,792 (16.7) 60,930 21.1
---------------------------------------------------------------
Total ........... $ 314,061 $ 308,620 1.8 $ 295,541 4.4
===============================================================
</TABLE>
The following table shows the maturity of certificates of deposit of $100,000 or
greater as of December 31, 1998:
TABLE 13 - Maturity of Certificates of Deposits of $100,000 or Greater
(in thousands)
Three months or less ..... $12,604
Three to six months ...... 2,207
Six to twelve months ..... 1,303
Greater than twelve months 410
-------
Total ................. $16,524
=======
Capital Adequacy
At December 31, 1998, total shareholders' equity of the Corporation was
$42,221,000, a $2,872,000 or 7% increase over $39,349,000 at December 31, 1997.
In addition to earnings and dividends for the year, the impact of SFAS No. 115
resulted in an increase in shareholders' equity in 1998. As of December 31,
1998, shareholders' equity included unrealized gains on investment securities,
net of deferred taxes, of $100,000 compared to unrealized gains on investment
securities, net of taxes, of $62,000 at December 31, 1997. This change accounted
for a $38,000 increase in total shareholders' equity from December 31, 1997, to
December 31, 1998.
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, 1998 and 1997, are listed
below. These ratios are all in excess of the minimum required capital ratios,
also listed below.
TABLE 14 - Risk-Based Capital Ratios
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------
Minimum Minimum
Actual Required Actual Required
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier I capital ratio .......... 12.42% 4.00% 12.21% 4.00%
Total capital ratio ........... 13.67 8.00 13.47 8.00
</TABLE>
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, 1998 and 1997, 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, 1998. 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, 1998.
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
11
<PAGE>
uniform lending policy that defines the lending functions and goals, loan
approval process, lending limits, and loan review.
Nonperforming assets amounted to $764,000 at December 31, 1998, a 36% decrease
from $1,194,000 at December 31, 1997. Nonperforming loans were $493,000 at
December 31, 1998, a 58% decrease from $1,169,000 at December 31, 1997. OREO
increased $246,000 to $271,000 at December 31, 1998, from $25,000 at December
31, 1997. Both amounts consist of OREO collateralizing single loans. The
property reported as of December 31, 1997 was disposed of during 1998 and new
properties, collateralizing a single loan were added to the Bank's OREO account
during the fourth quarter of 1998.
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, 1998.
TABLE 15 - Nonperforming Assets
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more not
on nonaccrual status:
Real estate--mortgage .................... $ 84 $ 72 $ 68 $ -- $ 48
-----------------------------------------------------------------------
Consumer ................................. 56 27 51 155 82
Loans on which the accrual of interest
has been discontinued:
Commercial and industrial ................ -- 347 76 339 --
Real estate--mortgage ................... -- 723 712 117 371
Real estate--construction ............... 353 -- -- -- 275
-----------------------------------------------------------------------
Total nonperforming loans .............. 493 1,169 907 611 776
Other real estate owned and in-substance
foreclosed properties * ................. 271 25 1,523 3,794 3,475
-----------------------------------------------------------------------
Total nonperforming assets ............. $ 764 $1,194 $2,430 $4,405 $4,251
=======================================================================
</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
$274,000 for the year ended December 31, 1998. Interest earned and included in
interest income on these loans prior to their nonperforming status amounted to
$44,000 in 1998.
* 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 1996, 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.
12
<PAGE>
TABLE 16 - Interest Rate Sensitivity Analysis as of December 31, 1998
<TABLE>
<CAPTION>
Repricing Periods
---------------------------------------------------------------------------------
(dollars in thousands) 0 to 30 31 to 90 91 to 180 181 to 365 Over Non-Rate
Days Days Days Days 1 Year Sensitive Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits with other banks . $ 5,105 $ -- $ 46 $ -- $ -- $ -- $ 5,151
Federal funds sold ......................... 20,372 -- -- -- -- -- 20,372
Investment securities ...................... 17,766 2,004 4,286 3,145 23,759 -- 50,960
Loans ...................................... 82,672 11,609 19,209 28,296 139,399 (4,100) 277,085
Cash and due from banks .................... -- -- -- -- -- 19,807 19,807
Other assets ............................... -- -- -- -- -- 14,262 14,262
---------------------------------------------------------------------------------
Total assets ............................. $ 125,915 $ 13,613 $ 23,541 $ 31,441 $ 163,158 $ 29,969 $ 387,637
---------------------------------------------------------------------------------
Liabilities and shareholders' equity:
Demand, noninterest-bearing ................ $ -- $ -- $ -- $ -- $ -- $ 89,872 $ 89,872
Savings deposits ........................... 71,135 -- -- -- 118,560 -- 189,695
Time deposits .............................. 14,781 10,605 16,025 13,044 9,270 -- 63,725
Other liabilities .......................... -- -- -- -- -- 6,152 6,152
Shareholders' equity ....................... -- -- -- -- -- 38,193 38,193
---------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 85,916 $ 10,605 $ 16,025 $ 13,044 $ 127,830 $ 134,217 $ 387,637
---------------------------------------------------------------------------------
Gap .......................................... $ 39,999 $ 3,008 $ 7,516 $ 18,397 $ 35,328 ($104,248) --
Cumulative gap ............................... $ 39,999 $ 43,007 $ 50,523 $ 68,920 $ 104,248 -- --
Cumulative earning assets as a ratio
of interest bearing liabilities ............ 147% 145% 145% 155% 141% -- --
</TABLE>
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 1998, 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
Federal Home Loan Bank of Pittsburgh (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 1998, cash provided by operations amounted to $10,001,000 and was
primarily from net income of $6,857,000 for 1998. Cash used for investing
activities amounted to $27,277,000. Investment activity used $10,266,000 in
cash, as the balance in the investment portfolio increased by 25% at December
31, 1998, compared to December 31, 1997. Loan activity, including the purchase
of $26,206,000 in indirect automobile paper, used $15,252,000 in funds during
1998. The sale and acquisition of OREO properties in 1998 used a net amount of
$22,000 in cash, while the purchase of capital additions used $1,737,000.
Offsetting the decrease in funds from investing activities was an increase in
funds from the Corporation's financing activities, which provided $9,426,000 in
net cash, primarily the result of a $13,551,000 net increase in outstanding
noninterest-bearing demand and savings related deposits. The Corporation used
$26,000 in repayment of its mortgage debt. The Corporation also used $2,519,000
to repurchase treasury stock. The Corporation's cash and cash equivalents
decreased from December 31, 1997, to December 31, 1998, by $7,850,000, from
$53,182,000 at December 31, 1997 to $45,332,000 at December 31, 1998.
13
<PAGE>
Other
- -----
Year 2000
The Year 2000 Problem
The Y2K problem is the result of potential difficulty with software and computer
systems or any equipment with computer chips (collectively the "Systems") that
store the year portion of the date as just two digits, rather than four digits
(e.g. 98 for 1998). Systems using the two digit approach will not be able to
determine whether "00" represents the year 2000 or 1900. The problem, if not
corrected, may make those systems fail altogether or, even worse, allow them to
generate incorrect calculations causing a disruption of the operations of the
computer and related systems.
Readiness Efforts
The Corporation began its process of assuring that all its Systems and
applications are Y2K compliant in November 1996. In 1997, a comprehensive
project plan (the "Plan") to address the Y2K problem and issues, relating to the
Bank's and its affiliated operations, was developed, approved by the Board of
Directors 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 scope of 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
its 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 computer systems
has been completed. The scope of the project also includes other operational and
environmental systems, since they may be impacted if embedded computer chips
control the functionality of those Systems. Based on the assessment, the Bank
has identified and prioritized those Systems deemed to be mission critical or
those that have a 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 and other external counterparties were
initiated in 1997, continued through 1998 and into 1999, to assess the Y2K
readiness of their products and services. Their progress in meeting their
targeted schedules to attain Y2K readiness is being monitored for any indication
that they may not be able to address their Y2K problems in a timely fashion.
Thus far, responses indicate that most of the significant providers in the Group
currently have compliant versions available or are well into the renovation and
testing phases with completion scheduled for not later than March 31, 1999.
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 be Y2K compliant. The Team
will continue to monitor the progress of the Group in their efforts to become
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 its
significant deposit customers. The Bank has also designed and substantially
implemented a plan to identify the potential risk posed by the impact of Y2K
issues on its significant borrowing customers. Formal communications have been
initiated and initial findings were reported to the Board of Directors during
the fourth quarter of 1998. At each quarterly Bank Board of Directors meeting,
the Board is presented with an update of the status of the Y2K initiative. On
those months that the Board of Directors does not meet, an update of the Y2K
initiative is 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 developing and implementing plans to educate and inform its
employees, customers and community about the Y2K readiness of the Bank, as well
as the Y2K issues facing the financial services industry and the public at
large.
The Bank employed an outside consultant to review its Y2K project. The report is
being reviewed and the findings are being considered by management.
Current Status
The Team estimates that the Bank's Y2K readiness project is 92% complete and
that the activities involved in assessing external risks and operational issues
are 90% complete overall.
The following table provides a summary of the current status of the five phases
involved and a projected timetable for completion.
Project Phase % Completed Projected Completion Comments
- --------------------------------------------------------------------------------
Awareness 100% Completed
Assessment 100% Completed
Renovation 100% Refer to Note (1)
Validation 80% March 31, 1999 On Schedule
Implementation 80% June 30, 1999 On Schedule
Overall Completion 92%
Note (1) While the Bank's mission critical Systems are 100% completed in the
Renovation phase, the Bank has determined that its third party vendors
and service providers are substantially complete in the Renovation
phase. It is anticipated that the mission critical Group members will
have completed the Renovation phase by March 31, 1999.
14
<PAGE>
Costs
The Bank has thus far primarily used and expects to continue to use internal
resources to implement its readiness plan and to upgrade or replace the Systems
affected by the Y2K issue. The total cost to the Bank of these Y2K compliance
activities has not been and is not anticipated to be material to its financial
position or results of operations in any given year. The Bank anticipates
funding the costs of becoming Y2K compliant out of its earnings streams.
Purchased hardware and software is being capitalized and depreciated in
accordance with Bank policy. Other costs related to the project will be expensed
as incurred. The Bank does not anticipate having to reduce or eliminate any of
its existing hardware / software budgeted Systems spending because of the
projected increase in Y2K Systems spending.
There are no significant liabilities that have arisen because of the Y2K
process. To management's knowledge, all Y2K related liabilities have been
recorded on the Bank's books in an appropriate and timely manner.
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 currently believes that the loan loss reserve is
sufficient to cover the potential needs of both Y2K and non-Y2K loan loss
activity. Bank management is monitoring the loan loss reserve, as it relates to
Y2K matters on an ongoing basis.
A detailed analysis of costs incurred from both 1997 and 1998 in conjunction
with Y2K is being maintained in the Bank's information services area. Based on a
review of this analysis and a discussion with the appropriate Bank officers, 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 ..................................... 103,000
--------
Total expended to date ...................................... 435,000
Anticipated additional costs (1) ............................ 130,000
--------
Total projected Y2K costs ................................... $565,000
========
(1) Primarily associated with contingency and communications related expenses
and an additional staff person to assist in the Y2K project.
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.
Risk Assessment
Based upon current information related to the Group, management has determined
that the Y2K issues will not pose significant operational problems for its
Systems. This determination is based on the ability of those Group members to
renovate, in a timely manner, the products and services on which the Bank's
Systems rely. However, the Bank can give no guarantee that the systems of the
Group members will be timely renovated and become Y2K compliant.
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 were
to fail due to a Y2K problem.
Bank management believes, based on information and testing results obtained from
both mission critical vendors, that both are and it is anticipated will remain
Y2K compliant. The Bank will continue to monitor the Y2K compliance of these two
mission critical vendors.
Contingency Plan -- Y2K
Realizing that some disruption may occur despite its best efforts, because of
the Y2K issue, the Bank is in the process of updating 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 status of the
contingency planning process was presented to the Executive Committee of the
Bank's Board of Directors in December 1998 and the contingency plan will be
substantially completed by March 31, 1999.
15
<PAGE>
1997 vs. 1996 Results of Operations
Net Income
Net income for the year ended December 31, 1997, was $6,130,000, a 1% increase
over net income of $6,042,000 for the year ended December 31, 1996. 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. Net
income for 1997 was 12% ahead of that amount. Basic earnings per share rose from
$1.38 in 1996 to $1.40 in 1997. The addition of $545,000 to net income,
discussed previously, added $.12 per basic common share to 1996's earnings per
share. Earnings per share - assuming dilution was $1.34 for 1997, compared to
$1.33 in 1996. In 1997, the Corporation paid dividends of $0.36 per share. In
1996, the Corporation paid dividends of $0.46 per share, including a onetime
special dividend of $0.16 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 increased 20% for 1997, compared to 1996.
Return on average assets was 1.74% for 1997 compared to 1.79% in 1996. Return on
average equity was 16.45% in 1997 versus 18.16% in 1996, reflecting the effect
of the nonrecurring transaction in 1996, discussed previously.
Net Interest Income
A 5% increase in average earning assets, from 1996 to 1997, combined with
a 10 basis point decrease in the average yield on earning assets, was primarily
responsible of a $960,000 or a 4% rise in interest income.
Interest expense increased 7% or $439,000 from 1996 to 1997. The primary reason
for this increase was a 21% increase in the average outstanding balance of
higher costing CDs.
Net interest income increased 3%, while the net interest margin decreased from
5.67% for 1996 to 5.59% for 1997.
Loan Loss Provision
The provision for loan losses amounted to $350,000 for 1996 and was decreased to
$200,000 for 1997. The allowance for possible loan losses as a percentage of
nonperforming loans amounted to 349% and 461% as of December 31, 1997 and 1996,
respectively. The ratio of the allowance for possible loan losses to total
outstanding loans was 1.52% and 1.61% at December 31, 1997 and 1996,
respectively.
Other Income
Other income increased 13% in 1997 from 1996 levels. Fees for Investment
Management and Trust services increased $1,762,000 or 30%. Net gains on the sale
of mortgage loans increased $111,000 or 28%, due primarily to an increase in the
sale of residential mortgage loans to the secondary mortgage market, from
$55,276,000 in 1996 compared to $75,874,000 in 1997. The sale of a commercial
OREO property, during the first quarter of 1997,caused the elimination of the
OREO revenue stream and is the reason for the $702,000 or 65% decrease in OREO
gains in 1997, compared to 1996. Other operating income increased $88,000 or
15%, 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
Other expenses increased by $1,859,000 or 10% in 1997 over 1996. Regular
salaries increased $1,010,000 or 13%, primarily due to merit increases and
staffing additions, including the establishment of TCBM in July 1997.
Salaries-other, primarily incentive based, increased $610,000 or 58%. Increases
in incentive based compensation, tied to overall profitability of the Bank's
lines of business amounted to $642,000. An Investment Management and Trust
incentive, directly related to the acquisition of new business, increased by
$96,000. Offsetting these increases were decreases of $92,000 for a onetime
bonus related to the non-recurring gain on the sale of OREO in 1996 and a
decrease of $36,000 in commissions paid to commissioned residential mortgage
loan originators.
Employee benefit costs increased by $206,000 or 13%, due to a $160,000 increase
in actuarially computed post-retirement benefit costs and a $73,000 and $87,000
increase in the respective costs of social security taxes and medical benefits.
A $150,000 reduction in the cost of the Corporations pension expense partially
offset these increases.
The $319,000 or 26% 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 $252,000 or 30%
decrease in computer processing fees. During the first quarter of 1996, the Bank
converted to an in-house data processing system. The expense for 1997 reflects a
full year's benefit from this conversion, compared to a partial year's in 1996.
16
<PAGE>
The cost of professional fees increased by $145,000 or 21% in 1997, compared to
1996. The largest increase was in legal fees, up $117,000 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, including the Corporation's business coverage premiums and FDIC
deposit insurance premiums, increased by $29,000 or 18% in 1997 compared to 1996
levels. During 1995, the FDIC announced that the bank insurance fund was
sufficiently funded to provide necessary coverage for insured bank deposits and
for a period of time eliminated further deposit premiums. Beginning in 1997, the
FDIC reinstated deposit premiums at a lower rate than previously charged. During
1997, the Bank paid a deposit insurance premium of $36,000, which was a $34,000
increase in FDIC deposit insurance premiums from the minimum premium of $2,000,
paid in 1996.
Other operating expenses decreased $7,000 from 1996 to 1997. Included in 1996's
expense was $155,000 of non-recurring expenses related to the sale of the OREO
property, discussed previously. Exclusive of these non-recurring expenses, other
operating expense increased $162,000 or 6% over 1996's similar expenses.
Income Taxes
The income tax provision for 1997 was $2,950,000, or a 32.5% effective rate,
compared to $2,900,000, or a 32.4% effective rate, for 1996.
17
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands)
As of December 31, 1998 1997
----------------------
<S> <C> <C>
Assets
- ------
Cash and due from banks ........................................ $ 19,810 $ 34,464
Interest-bearing deposits with other banks ..................... 5,150 2,118
Federal funds sold ............................................. 20,372 16,600
Investment securities available for sale, at market value
(amortized cost of $50,824,000 and $40,573,000 at
December 31, 1998 and 1997, respectively) .................... 50,976 40,666
Loans .......................................................... 281,185 268,558
Less: Allowance for possible loan losses ................... (4,100) (4,074)
----------------------
Net loans ................................................ 277,085 264,484
----------------------
Premises and equipment, net .................................... 12,209 11,790
Accrued interest receivable .................................... 2,069 2,039
Deferred federal income taxes .................................. 1,086 1,086
Other real estate owned ........................................ 271 25
Other assets ................................................... 2,812 938
----------------------
Total assets ............................................... $ 391,840 $ 374,210
======================
Liabilities
- -----------
Deposits:
Demand, noninterest-bearing .................................. $ 88,937 $ 101,188
Savings ...................................................... 189,695 165,739
Time ......................................................... 63,725 61,879
----------------------
Total deposits ............................................. 342,357 328,806
Other liabilities .............................................. 7,262 6,055
----------------------
Total liabilities .......................................... 349,619 334,861
----------------------
Commitments and contingencies (Note 13)
Shareholders' equity
- --------------------
Common stock, par value $1, authorized, 25,000,000 shares
and 5,000,000 shares as of December 31, 1998 and 1997,
issued 5,067,078 shares and 2,519,379 shares as of
December 31, 1998 and 1997, respectively, and
outstanding 4,303,818 shares and 2,185,609 shares as of
December 31, 1998 and 1997, respectively ..................... 5,067 2,519
Paid-in capital in excess of par value ......................... 2,478 4,589
Unrealized investment appreciation, net of deferred income taxes 100 62
Retained earnings .............................................. 39,791 34,946
----------------------
47,436 42,116
Less: Common stock in treasury, at cost-- 763,260 and 333,770
shares at December 31, 1998 and 1997, respectively ........... (5,215) (2,767)
----------------------
Total shareholders' equity ................................. 42,221 39,349
----------------------
Total liabilities and shareholders' equity ................. $ 391,840 $ 374,210
======================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
(in thousands, except for share and per share data)
For the years ended December 31, 1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Net interest income:
Interest income:
Interest and fees on loans ........................ $ 23,441 $ 22,083 $ 21,513
Interest on federal funds sold .................... 824 935 257
Interest and dividends on investment securities:
Taxable interest income .......................... 1,864 1,916 2,082
Tax-exempt interest income ....................... 224 283 406
Dividend income .................................. 85 80 79
------------------------------------
Total interest income ........................... 26,438 25,297 24,337
Interest expense on deposits ....................... 5,976 6,929 6,490
------------------------------------
Net interest income ................................ 20,462 18,368 17,847
Loan loss provision ................................ 150 200 350
------------------------------------
Net interest income after loan loss provision ...... 20,312 18,168 17,497
------------------------------------
Other income:
Fees for investment management and trust services 9,272 7,698 5,936
Service charges on deposit accounts ............. 1,169 1,124 1,081
Other fees and service charges .................. 1,780 1,378 1,280
Net gain on sale of loans ....................... 818 509 398
Gain on sale of other real estate owned ......... 224 379 1,081
Other real estate owned income .................. 0 0 74
Other operating income .......................... 1,457 661 573
------------------------------------
Total other income ......................... 14,720 11,749 10,423
------------------------------------
Other expenses:
Salaries-regular ................................ 10,289 8,604 7,594
Salaries-other .................................. 2,375 1,655 1,045
Employee benefits ............................... 1,908 1,791 1,585
Occupancy expense ............................... 1,392 1,365 1,537
Furniture, fixtures, and equipment .............. 1,817 1,565 1,246
Advertising ..................................... 1,283 1,069 991
Professional fees ............................... 811 822 677
Computer processing ............................. 569 584 836
Merchant credit card processing ................. 466 390 376
Stationery and supplies ......................... 354 322 355
Insurance ....................................... 213 188 159
Net cost of operation of other real estate owned 7 9 97
Other operating expenses ........................ 3,211 2,473 2,480
------------------------------------
Total other expenses ....................... 24,695 20,837 18,978
------------------------------------
Income before income taxes ......................... 10,337 9,080 8,942
Applicable income taxes ............................ 3,480 2,950 2,900
------------------------------------
Net income ......................................... $ 6,857 $ 6,130 $ 6,042
====================================
Earnings per common share* ......................... $ 1.58 $ 1.40 $ 1.38
Earnings per common share - assuming dilution* ..... $ 1.51 $ 1.33 $ 1.33
Weighted-average shares outstanding* ............... 4,327,297 4,392,162 4,385,094
Dilutive potential common shares* .................. 225,708 203,660 151,698
------------------------------------
Adjusted weighted-average shares* .................. 4,553,005 4,595,822 4,536,792
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
*Restated to reflect the effect of the 2-for-1 stock split, effective September
1, 1998.
19
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(in thousands)
For the years ended December 31, 1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Operating activities:
- ---------------------
Net income .................................................... $ 6,857 $ 6,130 $ 6,042
Adjustments to reconcile net income to
Net cash provided by operating activities:
Provision for loan losses ................................... 150 200 350
Provision for depreciation and amortization ................. 1,333 1,091 1,142
Loans originated for resale ................................. (132,175) (78,407) (56,915)
Proceeds from sale of loans ................................. 135,494 75,874 55,276
Net gain on sale of loans ................................... (818) (509) (398)
Net gain on disposal of other real estate owned ............. (224) (379) (1,081)
Provision for deferred income taxes ......................... (20) 194 (161)
Change in income taxes payable/refundable ................... (405) -- --
Change in accrued interest receivable ....................... (30) 125 299
Change in accrued interest payable .......................... 207 (345) 1,443
Other ....................................................... (368) 1,485 (713)
-----------------------------------
Net cash provided by operating activities ................... 10,001 5,459 5,284
-----------------------------------
Investing activities:
- ---------------------
Purchases of investment securities ............................ (36,683) (30,013) (12,086)
Proceeds from maturities of investment securities ............. 11,415 15,200 16,685
Proceeds from sales of investment securities available for sale -- 27 9,502
Proceeds from calls of investment securities .................. 15,002 8,955 9,905
Proceeds on disposition of other real estate owned ............ 249 1,879 3,462
Purchase of other real estate owned ........................... (271) -- (141)
Captialization of costs of other real estate owned ............ -- (2) --
Loan repayments, net of originations .......................... 10,954 26,462 18,974
Purchase of automobile retail installment contracts ........... (26,206) (32,859) (40,831)
Purchases of premises and equipment ........................... (1,737) (1,542) (557)
-----------------------------------
Net cash (used) / provided by investing activities .......... (27,277) (11,893) 4,913
-----------------------------------
Financing activities:
- ---------------------
Change in demand and savings deposits ......................... 11,705 22,622 1,837
Change in time deposits ....................................... 1,846 3,001 (16,255)
Dividends paid ................................................ (2,012) (1,583) (2,017)
Repayment of mortgage debt .................................... (26) (1,809) (54)
Proceeds from issuance of common stock ........................ 432 260 93
Purchase of Treasury Stock .................................... (2,519) (1,329) --
-----------------------------------
Net cash provided / (used) by financing activities .......... 9,426 21,162 (16,396)
-----------------------------------
Change in cash and cash equivalents ........................... (7,850) 14,728 (6,199)
Cash and cash equivalents at beginning of year ................ 53,182 38,454 44,653
-----------------------------------
Cash and cash equivalents at end of year ...................... $ 45,332 $ 53,182 $ 38,454
===================================
Supplemental cash flow information:
- -----------------------------------
Cash paid during the year for:
Income taxes ................................................ $ 3,861 $ 2,153 $ 3,340
Interest .................................................... 5,769 6,835 5,047
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
Consolidated Statements of Comprehensive Income
(in thousands)
For the years ended December 31, 1998 1997 1996
-----------------------------
Net Income .................................. $ 6,857 $ 6,130 $ 6,042
Other comprehensive income:
Unrealized holding gains (losses)
arising during the period ............. 59 94 (320)
Reclassification adjustment for
gains included in net income .......... -- -- (2)
Deferred income tax (benefit) expense on
unrealized holding gains (losses)
arising during the period ............. (21) (31) 109
-----------------------------
Comprehensive net income .................... $ 6,895 $ 6,193 $ 5,829
=============================
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
(in thousands, except for shares of common stock)
Shares of Unrealized
For the years ended December 31, 1998, Common Common Paid-in Retained Gains Treasury
1997 and 1996 Stock issued Stock Capital Earnings (Losses) Stock
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
Net income ....................................... -- -- -- 6,857 -- --
Dividends declared, $0.465 per share ............ -- -- -- (2,012) -- --
Change in unrealized gains (losses), net of income -- -- -- -- -- --
taxes of $52,000 .............................. -- -- -- -- 38 --
2-for-1 stock split .............................. 2,525,339 2,525 (2,525) -- -- --
Tax benefit from gains on stock option exercise .. -- -- 173 -- -- --
Purchase of treasury stock ....................... -- -- -- -- -- (2,519)
Retirement of treasury stock ..................... (5,740) (5) (163) -- -- 71
Common stock issued .............................. 28,100 28 404 -- -- --
------------------------------------------------------------------------------
Balance, December 31, 1998 ....................... 5,067,078 $ 5,067 $ 2,478 $ 39,791 $ 100 $ (5,215)
==============================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<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"), Tax
Counsellors of Bryn Mawr Inc. ("TCBM"), Insurance Counsellors of Bryn Mawr, Inc.
("ICBM") and The Bryn Mawr Trust Company (Jersey), Ltd ("BMTC (Jersey)").
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 $4,909,000 and $10,601,000 at December 31,
1998 and 1997, respectively.
Investment securities:
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, 1998, shareholders' equity was increased by
$100,000 due to unrealized gains (net of $52,000 in deferred income taxes) of
$152,000 in the investment securities 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 $1,718,000 and $3,524,000 at December 31, 1998
and 1997, 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 or fair value of the collateral, if the loan
is collateral dependent. As of December 31, 1998 and 1997, no impaired loans
were measured using the present value of expected future cash flows or at the
loan's market price. Impaired loans measured by the fair value of the loan's
collateral amounted to $1,718,000 and $3,524,000, respectively.
23
<PAGE>
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 1998 or 1997 were allocated from the
existing reserve for loan losses. As of December 31, 1998 and 1997, there were
$935,000 and $791,000, 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, 1998 and 1997 was $300,000 and $226,000,
respectively. Impaired loans for which no loan loss allowance was allocated
amounted to $783,000 and $2,733,000 at December 31, 1998 and 1997. Average
impaired loans during both 1998 and 1997 amounted to $2,820,000 and $2,927,000,
respectively.
When a loan is classified as impaired, it is put on 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 1998 or 1997. Loans may be removed from impaired status and
returned to accrual status when all principal and interest amounts contractually
due are reasonably assured of repayment within an acceptable period of time and
there is a sustained period of repayment performance by the borrower, with a
minimum repayment of at least six months, in accordance with the contractual
terms of interest and principal. Subsequent income recognition would be recorded
under the existing terms of the loan. Based on the above criteria, no loans
considered impaired during 1998 were removed from the impaired loan status and
$409,000 in loan balances were removed from impaired status and returned to
accrual status during 1997.
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.
Other real estate owned:
Other real estate owned ("OREO") consists of properties acquired by foreclosure.
These assets are carried at the lower of cost or estimated fair value at the
time the loan is foreclosed less estimated cost to sell. The amounts recoverable
from OREO could differ materially from the amounts used in arriving at the net
carrying value of the assets because of future market factors beyond the control
of the Bank. Costs to improve the property are capitalized, whereas costs of
holding the property are charged to expense.
Deferred loan fees:
The Bank defers all loan fees and related direct loan origination costs.
Deferred loan fees and costs are generally capitalized and amortized as yield
adjustment over the life of the loan using the interest method.
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 September 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 a business enterprise's fiscal year.
24
<PAGE>
In September 1997, Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") was issued. SFAS 131 replaces Statement of Financial Accounting Standard
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No.
131 requires public business enterprises to report certain information about
their operating segments in a complete set of financial statements to
shareholders. Such financial information is required to be reported on the basis
that it is used internally by the enterprise's chief operating decision maker in
making decisions related to resource allocation and segment performance. SFAS
No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Corporation adopted SFAS No. 131 on January 1, 1998.
Comparative year information is required to be restated in accordance with SFAS
No. 131, if practicable. In 1998, the first year of implementation, SFAS No. 131
was not required to be applied to interim period financial statements and the
Corporation did not do so.
In February 1998, Statement of Financial Accounting Standard No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
No. 132") was issued. This statement supersedes disclosure requirements of
Statements of Financial Standards No. 87, "Employers' Accounting for Pensions";
Statement of Financial Accounting Standard No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and Statement of Financial Accounting Standard No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (the
"Superseded Statements"). SFAS No. 132 addresses the disclosure aspects of the
Superseded Statements and does not address measurement or recognition, as
required under the Superseded Statements. SFAS No. 132, requires employers to
disclose some information not required previously, while eliminating other
requirements that were not considered useful. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. The Corporation adopted SFAS No.
132 on January 1, 1998. Disclosures required by SFAS No. 132 should be provided
for earlier periods presented for comparative purposes, unless that information
in not readily available.
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) 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
-----------------------------------------------------
Obligations of the
U.S. Government
and agencies .......... $44,838 $ 99 $ 26 $44,911 $44,911
State & political
subdivisions .......... 4,612 62 -- 4,674 4,674
Other securities ........ 1,374 17 -- 1,391 1,391
-----------------------------------------------------
Total ................. $50,824 $ 178 $ 26 $50,976 $50,976
=====================================================
(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
=====================================================
At December 31, 1998, securities having a book value of $10,500,000 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, 1998, 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) 1998
-----------------------
Estimated
Amortized Market
Cost Value
-----------------------
Due in one year or less ........................... $27,168 $27,201
Due after one year through five years ............. 21,860 21,935
Due after five years through ten years ............ 438 449
Due after ten years ............................... -- --
Other securities .................................. 1,358 1,391
-----------------------
Total ........................................ $50,824 $50,976
=======================
Proceeds from sales of debt securities are as follows:
(in thousands) 1998 1997 1996
--------------------------------------
Proceeds ......................... $ -- $ -- $9,502
Gross gains ...................... -- -- 2
Gross losses ..................... -- -- --
4. Loans:
- ---------
Loans outstanding at December 31 are detailed by category as follows:
(in thousands) 1998 1997
-----------------------
Real estate loans:
Permanent mortgage loans ........................... $110,535 $102,474
Construction loans ................................. 13,204 13,647
Commercial and industrial loans .................... 89,368 75,474
Loans to individuals for household,
family, and other consumer expenditures .......... 68,078 76,963
-----------------------
Total .......................................... $281,185 $268,558
=======================
All loans past due 90 days or more, except consumer loans, are placed on
nonaccrual status. Nonperforming loans amounted to $493,000 and $1,169,000 at
December 31, 1998 and 1997, respectively. Forgone interest on nonaccrual loans
was $230,000, $298,000, and $144,000 in 1998, 1997, and 1996, respectively.
25
<PAGE>
5. Allowance for Possible Loan Losses:
- --------------------------------------
The summary of the changes in the allowance for possible loan losses is as
follows:
(in thousands) .......................... 1998 1997 1996
----------------------------------
Balance, January 1, ..................... $ 4,074 $ 4,182 $ 3,652
Charge-offs ............................. (243) (433) (268)
Recoveries .............................. 119 125 448
----------------------------------
Net recoveries / (charge-offs) ....... (124) (308) 180
Loan loss provision ..................... 150 200 350
----------------------------------
Balance, December 31, ................... $ 4,100 $ 4,074 $ 4,182
==================================
6. Premises and Equipment:
- --------------------------
A summary of premises and equipment at December 31 is as follows:
(in thousands) ................................. 1998 1997
------------------------
Land ........................................... $ 3,003 $ 2,973
Buildings ...................................... 11,649 10,484
Furniture and equipment ........................ 10,090 9,785
Leasehold improvements ......................... 389 184
------------------------
25,131 23,426
Less accumulated depreciation .................. 12,922 11,636
------------------------
Total ....................................... $12,209 $11,790
========================
During 1997, the Corporation paid off a mortgage loan on its property located at
10 Bryn Mawr Avenue. As of December 31, 1998, the Corporation has borrowings
outstanding of $668,000. The borrowings are collateralized by a property with a
book value of $1,682,000. The weighted average interest rate on the borrowings
was 8.50% and 9.54% in 1998 and 1997, 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.
26
<PAGE>
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:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-----------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks ........... $ 19,810 $ 19,810 $ 34,464 $ 34,464
Interest-bearing deposits with
other banks ..................... 5,150 5,150 2,118 2,118
Federal funds sold ................ 20,372 20,372 16,600 16,600
Investment securities ............. 50,976 50,976 40,666 40,666
Net loans ......................... 277,085 283,265 264,484 269,656
-----------------------------------------------
Total financial assets ......... $373,393 $379,573 $358,332 $363,504
===============================================
Financial liabilities:
Deposits .......................... $342,357 $342,465 $328,806 $328,644
Other liabilities ................. 668 708 694 719
-----------------------------------------------
Total financial
liabilities ................... $343,025 $343,173 $329,500 $329,363
Off-balance sheet instruments $ 92,920 $ 92,920 $ 80,607 $ 80,607
</TABLE>
8. Applicable Federal Income Taxes:
- -----------------------------------
The components of the net deferred tax asset as of December 31 are as follows:
(in thousands) 1998 1997
--------------------------
Deferred tax assets:
Loan loss reserve .......................... $ 710 $ 659
Deferred loan fees ......................... 22 34
Depreciation ............................... 53 15
Other reserves ............................. 353 410
--------------------------
1,138 1,118
Deferred tax liabilities:
Unrealized appreciation on
investment securities ...................... (52) (32)
--------------------------
Total deferred tax assets .................. $ 1,086 $ 1,086
==========================
No valuation allowance was recorded as of December 31, 1998 and 1997.
The provisions for federal income taxes consist of the following:
(in thousands) 1998 1997 1996
-----------------------------------------
Currently payable ............... $ 3,500 $ 2,756 $ 3,061
Deferred ........................ (20) 194 (161)
-----------------------------------------
Total ........................... $ 3,480 $ 2,950 $ 2,900
=========================================
The sources of temporary differences resulting in deferred federal income taxes
and the approximate tax effect of each are as follows:
(in thousands) 1998 1997 1996
-------------------------------------
Other real estate owned .............. $ 0 $ 364 $ (8)
Loan loss provision .................. (51) (68) (119)
Depreciation ......................... 12 (52) (83)
Pension expense ...................... (38) 9 (37)
Deferred loan fees ................... 57 12 27
Other ................................ 0 (71) 59
-------------------------------------
Total ........................... $ (20) $ 194 $(161)
=====================================
Applicable federal income taxes differed from the amount derived by applying the
statutory federal tax rate to income as follows:
1998 1997 1996
---------------------------------------
Statutory federal tax rate ........ 34% 34% 34%
---------------------------------------
(in thousands)
Computed "expected"
tax expense ..................... $ 3,515 $ 3,087 $ 3,040
Benefit reductions in taxes
resulting from tax-exempt
income .......................... (334) (113) (181)
Other, net ........................ 299 (24) 41
---------------------------------------
Actual tax expense ................ $ 3,480 $ 2,950 $ 2,900
=======================================
27
<PAGE>
9. Pension and Other Postretirement Benefits
- --------------------------------------------
The Corporation sponsors two pension plans and a postretirement benefit plan for
certain of its employees. The following tables provide a reconciliation of the
changes in the plans' benefit obligation and fair value of assets over the
two-year period ending December 31, 1998, and a reconciliation of funded status
as of December 31 of both years:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- -----------------------
(Dollars in thousands) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Reconciliation of Benefit Obligation and Plan Assets
- ----------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 ....................... $ 12,623 $ 10,174 $ 2,366 $ 1,503
Service cost .......................................... 701 555 9 11
Interest cost ......................................... 900 790 141 165
Amendments ............................................ 50 137 (1,390) --
Actuarial (gain) loss ................................. 881 1,417 390 876
Benefits paid ......................................... (409) (450) (189) (189)
-------- -------- -------- --------
Benefit obligation at December 31 ..................... $ 14,746 $ 12,623 $ 1,327 $ 2,366
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at January 1 ................ $ 17,527 $ 14,508 $ -- $ --
Actual return on plan assets .......................... 3,580 3,469 -- --
Employer contribution ................................. -- -- 189 189
Benefits paid ......................................... (409) (450) (189) (189)
-------- -------- -------- --------
Fair value of plan assets at December 31 .............. $ 20,698 $ 17,527 $ -- $ --
-------- -------- -------- --------
<CAPTION>
Funded Status Reconciliation and Key Assumptions
- ------------------------------------------------
Pension Benefits Postretirement Benefits
-------------------- -----------------------
(Dollars in thousands) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Reconciliation of funded status
Funded Status ......................................... $ 5,952 $ 4,904 $ (1,327) $ (2,365)
Unrecognized net actuarial (gain) loss ................ (6,476) (5,579) 452 78
Unrecognized prior service cost ....................... 324 325 -- --
Unrecognized transition obligation (asset) ............ -- -- 363 1,831
-------- -------- -------- --------
Prepaid (accrued) benefit cost ........................ $ (200) $ (350) $ (512) $ (456)
-------- -------- -------- --------
Amounts recognized in financial statements consists of:
Prepaid benefit cost/(Accrued benefit liability) ...... $ (200) $ (350) $ (512) $ (456)
Intangible asset ...................................... -- 29 -- --
-------- -------- -------- --------
Net amount recognized ................................. $ (200) $ (321) $ (512) $ (456)
-------- -------- -------- --------
</TABLE>
The Bank's Supplemental Employee Retirement Plan (the "SERP") was the only
pension plan with an accumulated benefit obligation in excess of plan assets.
The SERP's accumulated benefit obligation was $897,197 as of December 31, 1998
and $736,719 as of December 31, 1997. There are no plan assets in the SERP due
to the nature of the SERP. The Corporation's plan for postretirement benefits
other than pensions also has no plan assets. The aggregate benefit obligation
for that plan was $1,326,728 as of December 31, 1998 and $2,365,556 as of
December 31, 1997.
The assumptions used in the measurement of the Corporation's benefit obligation
are shown on the following table:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------------- ------------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of end of year
Discount rate ................................ 6.75% 7.00% 7.50% 6.75% 7.00% 7.50%
Expected return on plan assets ............... 8.25% 8.00% 8.00% N/A N/A N/A
Rate of compensation increase ................ 5.00% 5.00% 5.00% N/A N/A N/A
Medical Trend Rate ........................... N/A N/A N/A N/A N/A N/A
</TABLE>
The assumed health care cost trend rate used was 7% and was graded down in 1%
increments per year to an ultimate rate of 6% per year.
28
<PAGE>
The following table provides the components of net periodic cost (income) for
the plans for years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost ................................ $ 701 $ 555 $ 489 $ 9 $ 11 $ 11
Interest cost ............................... 900 790 693 141 165 106
Expected return on plan assets .............. (1,428) (1,144) (1,003) -- -- --
Amortization of prior service cost .......... 52 38 108 -- -- --
Amortization of transition obligation (asset) -- -- -- 78 122 122
Amortization of net actuarial (gain) loss ... (375) (266) (179) 17 -- (77)
-------- -------- --------- -------- -------- ---------
Net periodic benefit cost ................... $ (150) $ (27) $ 108 $ 245 $ 298 $ 162
-------- -------- --------- -------- -------- ---------
</TABLE>
The prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Gains and losses in excess of
10% of the greater of the benefit obligation and the market-related value of
assets are amortized over the average remaining service period of active
participants.
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Sensitivity Analysis, Postretirement Benefits Point Increase Point Decrease
<S> <C> <C>
Effect on total of service and interest cost components ..... $10,154 $ (9,425)
Effect on accumulated postretirement benefit obligation ..... 80,602 (74,774)
</TABLE>
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 $245,000, 208,000 and $180,000 in 1998, 1997 and
1996, respectively.
10. Stock Option Plan:
- ---------------------
At December 31, 1998, 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 compensation for the Corporation's Stock Option
Plan been determined based on the fair value at the grant date for awards in
1998, 1997 and 1996, 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:
1998 1997 1996
-------------------------------------
Net income - as reported $ 6,857 $ 6,130 $ 6,042
Net Income pro forma $ 6,373 $ 6,003 $ 5,946
Basic earnings per share -
as reported $ 1.58 $ 1.40 $ 1.38
Basic earnings per share -
proforma $ 1.47 $ 1.37 $ 1.32
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 1996, 1997 and 1998: dividend yield of 1.81
percent, expected volatility of 22.5 percent , expected life of seven years and
risk-free interest rates of 5.6, 7.1 and 6.5 percent, respectively.
All option amounts have been restated to reflect the 2-for-1 stock split,
effective September 1, 1998.
29
<PAGE>
The Plan had, prior to 1994, up to 216,000 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 217,720 shares for
issuance under the Plan. The option to purchase shares of the Corporation's
common stock was issued to key officers. During 1995, the shareholder's approved
the issuance of 80,000 shares, 20,000 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. During 1998, the shareholders approved the issuance of up to 217,606
shares available for issuance to both employees and directors. The price will be
determined by the Corporation's Compensation Committee of the Board of Directors
at the time the option is granted. 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:
Shares Available Price Weighted
Under for per Average
Option Option Share Exercise Price
----------------------------------------------------------
Balance at
December 31, 1995 370,920 62,520 $4.50 - $9.30 $7.56
Options granted 18,000 (18,000) $12.50 $12.50
Options exercised (31,320) $6.75 - $8.25 $7.36
-------------------------
Balance at
December 31, 1996 357,600 44,520 $4.50 - $12.50 $7.83
Options granted 18,000 (18,000) $16.60 $16.60
Options exercised (35,000) $7.00 - $12.50 $7.43
-------------------------
Balance at
December 31, 1997 340,600 26,520 $4.50 - $16.94 $8.26
Options authorized 217,606
Options granted 97,400 (97,400) $24.50 $24.50
Options exercised (31,920) $6.75 - $24.50 $10.28
-------------------------
Balance at
December 31, 1998 406,080 146,726 $4.50 - $24.50 $12.06
-------------------------
Weighted-average remaining
contractual life of
options outstanding at
December 31, 1998 .............. 5.14 years
The weighted-average fair value of options granted during 1996, 1997 and 1998
were $10.64, $13.99 and $7.39, respectively.
The number of exercisable shares at December 31, 1998, 1997 and 1996 were
388,480, 279,960 and 239,680, respectively, with respective weighted average
exercise prices of $12.25, $8.39 and $7.71.
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 $.11 per share, $.03 per share and $.02 per share dilutive effect
on earnings per share for the years ended December 31, 1998, 1997 and 1996,
respectively.
11. Related Party Transactions:
- -------------------------------
The Corporation had loans outstanding directly to executive officers, directors
and certain other related parties of $3,836,000 and $3,506,000 at December 31,
1998 and 1997, respectively.
Following is a summary of these transactions:
(in thousands) 1998 1997
---------------------------
Balance, beginning of year $ 3,506 $ 3,465
Additions 1,173 549
Amounts collected (843) (508)
---------------------------
Balance, end of year $ 3,836 $ 3,506
---------------------------
12. 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.
30
<PAGE>
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,
1998 are $85,775,000. 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 and
bankers acceptances as of December 31, 1998 amounted to $6,651,000 and $494,000,
respectively.
As of December 31, 1998, 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. While these loan concentrations
represent a potential concentration of credit risk, the Bank's credit loss
experience compares favorably to the Bank's peer group credit loss experience.
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 the 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.
31
<PAGE>
14. Selected Quarterly Financial Data (Unaudited):
- -------------------------------------------------
Quarters ending 1998
(In thousands, except ---------------------------------------
per share data) 3/31 6/30 9/30 12/31
---------------------------------------
Interest income .................... $6,510 $6,570 $6,686 $6,672
Interest expense ................... 1,528 1,514 1,507 1,427
Net interest income ................ 4,982 5,056 5,179 5,245
Provision for loan losses .......... 25 25 37 63
Income before income taxes ......... 2,616 2,498 2,657 2,566
Net income ......................... 1,746 1,628 1,732 1,751
Earnings per common share .......... 0.40 0.38 0.40 0.41
Earnings per common share -
assuming dilution .................. 0.38 0.36 0.38 0.39
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 .......... 0.33 0.32 0.35 0.40
Earnings per common share -
assuming dilution ............... 0.32 0.30 0.34 0.38
15. Condensed Financial Statements:
- ----------------------------------
The condensed financial statements of the Corporation (parent company only) as
of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, are as follows:
Condensed Balance Sheets
(in thousands) 1998 1997
-------------------------
Assets:
Cash ............................................. $ 221 $ 967
Investments in subsidiaries,
at equity in net assets ........................ 38,710 34,922
Premises and equipment, net ...................... 4,056 4,155
Other assets ..................................... 72 --
-------------------------
Total assets ................................... $ 43,059 $ 40,044
=========================
Liabilities and shareholders' equity:
Mortgages payable ................................ $ 668 $ 694
Other liabilities ................................ 170 1
-------------------------
Total liabilities .............................. 838 695
Common stock, par value $1, authorized
25,000,000 shares and 5,000,000 shares
as of December 31, 1998 and 1997,
respectively, issued 5,067,078 shares
and 2,519,379 shares as of December
31, 1998 and 1997, respectively, and
outstanding 4,303,818 shares and
2,185,609 shares as of December 31,
1998 and 1997, respectively ...................... 5,067 2,519
Paid-in capital in excess of par value ............. 2,478 4,589
Unrealized investment appreciation
(depreciation), net of deferred income taxes ..... 100 62
Retained earnings .................................. 39,791 34,946
Less common stock in treasury, at cost -
763,260 shares and 333,770 shares
as of December 31, 1998 and 1997 .............. (5,215) (2,767)
-------------------------
Total shareholders' equity ....................... 42,221 39,349
-------------------------
Total liabilities and
shareholders' equity ........................... $ 43,059 $ 40,044
=========================
Condensed Statements of Income
(in thousands) 1998 1997 1996
-----------------------------------
Dividends from The Bryn
Mawr Trust Company ....................... $4,012 $5,359 $2,017
Interest and other income .................. 236 237 237
-----------------------------------
Total operating income ................... 4,248 5,596 2,254
Expenses ................................... 677 360 445
-----------------------------------
Income before equity in
undistributed income of
subsidiaries ............................. 3,571 5,236 1,809
Equity in undistributed income
of subsidiaries .......................... 3,136 852 4,162
-----------------------------------
Income before income taxes ................. 6,707 6,088 5,971
Federal income tax benefit ................. 150 42 71
-----------------------------------
Net income ................................. $6,857 $6,130 $6,042
-----------------------------------
32
<PAGE>
Condensed Statements of Cash Flows
(in thousands) 1998 1997 1996
-----------------------------------
Operating activities:
Net income ............................... $ 6,857 $ 6,130 $ 6,042
Adjustments to reconcile net income
to net cash provided
by operating activities:
Equity in undistributed (earnings)
losses of subsidiaries:
The Bryn Mawr Trust Company ............ (3,135) (852) (4,162)
Tax Counsellors of Bryn Mawr ........... (9) -- --
The Bryn Mawr Trust Company
(Jersey), Ltd. 8 -- --
Depreciation expense ..................... 99 98 98
Other .................................... (1) (1) (56)
---------------------------------
Net cash provided by
operating activities ................. 3,819 5,375 1,922
Investing Activities:
Investment in subsidiaries ............... (440) (75) --
---------------------------------
Net cash provided by
investing activities ................. (440) (75) --
Financing activities:
Dividends paid ........................... (2,012) (1,583) (2,017)
Repayment of mortgage debt ............... (26) (1,809) --
Repurchase of treasury stock ............. (2,519) (1,329) --
Proceeds from issuance of stock .......... 432 260 93
---------------------------------
Net cash used by financing
activities ........................... (4,125) (4,461) (1,924)
---------------------------------
(Decrease) increase in cash and
cash equivalents ......................... (746) 839 (2)
Cash and cash equivalents at
beginning of year ....................... 967 128 130
---------------------------------
Cash and cash equivalents at
end of year .............................. $ 221 $ 967 $ 128
=================================
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 31,1998, the Bank's retained earnings
amounted to $31,330,000. Therefore, as of December 31,1998, dividends available
for payment to the Corporation are limited to $31,330,000. 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 the amount
of dividends that it may pay to an amount equal to the limits placed on the
Bank, as discussed above.
33
<PAGE>
16. Segment Information:
- ------------------------
The Corporation's principal operating segments are structured around the
financial 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 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.
Segment information for the years ended December 31, 1998, 1997, and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997*
Mortgage All Mortgage All
(in thousands) Banking Trust Banking Other Consolidated Banking Trust Banking Other Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income ...... $ 20,103 $ -- $ 356 $ 3 $ 20,462 $ 18,031 $ -- $ 337 $ -- $ 18,368
Less loan loss provision .. 150 -- -- -- 150 200 -- -- -- 200
-------- ------- ------- -------- --------- -------- ------- ------- ------- --------
Net interest income after
loan loss provision ...... 19,953 -- 356 3 20,312 17,831 -- 337 -- 18,168
Other income:
Fees for investment
management and
trust services ......... -- 9,272 -- -- 9,272 0 7,698 -- -- 7,698
Service charges on
deposit accounts ....... 1,169 -- -- -- 1,169 1,124 -- -- -- 1,124
Other fees and service
charges ................ 571 -- 1,209 -- 1,780 503 -- 875 -- 1,378
Net gain on sale of
loans .................. 35 -- 783 -- 818 43 -- 466 -- 509
Gain on sale of other
real estate owned ...... 224 -- -- -- 224 379 -- -- -- 379
Other real estate
owned income ........... -- -- -- -- -- -- -- -- -- 74
Other operating
income ................. 631 -- -- 1,079 1,710 528 -- 4 370 902
-------- ------- ------- -------- --------- -------- ------- ------- ------- --------
Total other income ........ 2,630 9,272 1,992 1,079 14,973 2,577 7,698 1,345 370 11,990
Other expenses:
Salaries- regular ....... 6,489 2,863 417 520 10,289 5,858 2,415 235 96 8,604
Salaries- other ......... 1,692 386 117 180 2,375 1,347 215 93 -- 1,655
Fringe benefits ......... 1,232 549 74 53 1,908 1,237 501 45 8 1,791
Occupancy ............... 2,793 422 62 180 3,457 2,543 361 39 223 3,166
Other operating expenses 5,003 898 400 618 6,919 4,730 733 233 166 5,862
-------- ------- ------- -------- --------- -------- ------- ------- ------- --------
Total other expenses ...... 17,209 5,118 1,070 1,551 24,948 15,715 4,225 645 493 21,078
-------- ------- ------- -------- --------- -------- ------- ------- ------- --------
Segment profit (loss) ..... 5,374 4,154 1,278 (469) 10,337 4,693 3,473 1,037 (123) 9,080
Intersegment (revenues)
expenses ................. (17) 236 -- (219) -- (5) 236 -- (231) --
-------- ------- ------- -------- --------- -------- ------- ------- ------- --------
Segment profit after
eliminations ............. $ 5,357 $ 4,390 $ 1,278 $ (688) $ 10,337 $ 4,688 $ 3,709 $ 1,037 $ (354) $ 9,080
======== ======= ======= ======== ========= ======== ======= ======= ======= ========
% of segment profit (loss) 52% 40% 12% -4% 100% 52% 38% 11% -1% 100%
Toal assets at December 31. $369,556 $ 455 $16,532 $ 5,297 $ 391,840 $368,839 $ 158 $ -- $ 5,213 $374,210
Capital expenditures ...... $ 2,108 $ 370 $ 93 $ 30 $ 2,601 $ 1,462 $ 80 $ -- $ -- $ 1,542
Depreciation and
amortization ..............$ 1,146 $ 139 $ 16 $ 106 $ 1,407 $ 885 $ 105 $ 3 $ 98 $ 1,091
<CAPTION>
1996*
Mortgage All
(in thousands) Banking Trust Banking Other Consolidated
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income ...... $ 17,591 $ -- $ 256 $ -- $ 17,847
Less loan loss provision .. 350 -- -- -- 350
--------- --------- --------- ---------- --------
Net interest income after
loan loss provision ...... 17,241 -- 256 -- 17,497
Other income:
Fees for investment
management and
trust services ......... 0 5,936 -- -- 5,936
Service charges on
deposit accounts ....... 1,081 -- -- -- 1,081
Other fees and service
charges ................ 458 -- 822 -- 1,280
Net gain on sale of
loans .................. 35 -- 363 -- 398
Gain on sale of other
real estate owned ...... 1,081 -- -- -- 1,081
Other real estate
owned income ........... 74 -- -- -- 74
Other operating
income ................. 524 -- 53 237 814
--------- --------- --------- ---------- --------
Total other income ........ 3,253 5,936 1,238 237 10,664
Other expenses:
Salaries- regular ....... 5,324 2,066 204 -- 7,594
Salaries- other ......... 809 118 118 -- 1,045
Fringe benefits ......... 1,066 479 40 -- 1,585
Occupancy ............... 2,259 371 44 345 3,019
Other operating expenses 4,971 688 217 100 5,976
--------- --------- --------- ---------- --------
Total other expenses ...... 14,429 3,722 623 445 19,219
--------- --------- --------- ---------- --------
Segment profit (loss) ..... 6,065 2,214 871 (208) 8,942
Intersegment (revenues)
expenses ................. (5) 236 -- (231) --
--------- --------- --------- ---------- --------
Segment profit after
eliminations ............. $ 6,060 $ 2,450 $ 871 $ (439) $ 8,942
========= ========= ========= ========== ========
% of segment profit (loss) 68% 25% 10% -3% 100%
Toal assets at December 31 $ 341,156 $ 189 $ 7 $ 4,395 $ 345,747
Capital expenditures ...... $ 409 $ 143 $ 5 $ -- $ 557
Depreciation and
amortization .............. $ 1,007 $ 125 $ 10 $ -- $ 1,142
</TABLE>
Bryn Mawr Bank Corporation, Tax Counsellors of Bryn Mawr, Inc., and Insurance
Counsellors of Bryn Mawr, Inc. have been aggregated in All Other.
Intersegment (revenues) expenses consist of intersegment rent payments to Bryn
Mawr Bank Corporation from other segments and a $5,000 management fee, paid by
Bryn Mawr Bank Corporation to the Bank.
*-Reclassified for comparative purposes.
34
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of Bryn Mawr Bank Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, changes in
shareholders' equity and of cash flows present fairly, in all material respects
the financial position of Bryn Mawr Bank Corporation and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Pricewater Coopers L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 21, 1999
35
<PAGE>
PRICE RANGE OF SHARES
1998 1997*
High-Low Quotations High-Low Quotations
------------------------------------------------------------------
High Low Dividend High Low Dividend
Quarter Bid Bid Declared Bid Bid Declared
------------------------------------------------------------------
1st $27 $22 7/8 $0.115 $18 3/8 $13 1/4 $0.09
2nd $28 $24 3/4 0.115 $17 7/8 $16 1/2 0.09
3rd $27 7/8 $24 0.115 $22 15/16 $17 5/8 0.09
4th $27 1/2 $23 1/4 0.12 $27 $22 0.09
The approximate number of holders of record of common stock as of December 31,
1998 was 480.
The shares are traded on the over-the-counter market, and the price information
was obtained from The National Association of Securities Dealers (NASD).
* The 1997 high-low quotations and the dividend declarations have been restated
to reflect the effect of the 2-for-1 stock split, effective September 1,
1998.
36
<PAGE>
Bryn Mawr Bank Corpoaration
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
<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 21, 1999 on our audits as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, which report
is incorporated by reference in this Annual Report on Form 10-K.
PricewaterhouseCoopers, L L P
2400 Eleven Penn Center
Philadelphia, PA
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,810
<INT-BEARING-DEPOSITS> 5,150
<FED-FUNDS-SOLD> 20,372
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,976
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 281,185
<ALLOWANCE> 4,100
<TOTAL-ASSETS> 391,840
<DEPOSITS> 342,357
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,262
<LONG-TERM> 0
0
0
<COMMON> 5,067
<OTHER-SE> 37,154
<TOTAL-LIABILITIES-AND-EQUITY> 391,840
<INTEREST-LOAN> 23,441
<INTEREST-INVEST> 2,173
<INTEREST-OTHER> 824
<INTEREST-TOTAL> 26,438
<INTEREST-DEPOSIT> 5,976
<INTEREST-EXPENSE> 5,976
<INTEREST-INCOME-NET> 20,462
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 24,695
<INCOME-PRETAX> 10,337
<INCOME-PRE-EXTRAORDINARY> 10,337
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,857
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.51
<YIELD-ACTUAL> 5.99
<LOANS-NON> 493
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,074
<CHARGE-OFFS> 243
<RECOVERIES> 119
<ALLOWANCE-CLOSE> 4,100
<ALLOWANCE-DOMESTIC> 970
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,130
</TABLE>
<PAGE>
BROKERAGE SERVICES AGREEMENT
(Dual Employee Program)
THIS AGREEMENT, dated as of Jan 1, 1999 is by and between UVEST
-----------
FIINANCIAL SERVICES GROUP, INC., a North Carolina corporation doing business as
UVEST ("UVEST"), and the financial institution whose name appears on the final
page of this Agreement ("Subscriber").
THE PARTIES AGREE AS FOLLOWS:
1. Effective Date. This Agreement shall bind UVEST and Subscriber when
executed by an authorized representative of each party. The date of this
Agreement is referred to as the "Effective Date."
2. UVEST Centers. UVEST is a broker-dealer registered with the Securities
and Exchange Commission and is a member of the National Association of
Securities Dealers, Inc., and provides certain securities brokerage and
investment advisory services under its UVEST trademark to the general public,
including depositors and other customers of participating financial
institutions, through the operation of UVEST service centers ("UVEST Centers")
located within the branches of such participating financial institutions.
3. Determination of UVEST Center Locations. As soon as practicable
following the Effective Date, and from time to time during the term of this
Agreement, UVEST and Subscriber shall consult with each other and shall use all
reasonable efforts to determine the number and identity of Subscriber's
locations or locations of its affiliate depository institutions at which UVEST
shall open and operate UVEST Centers. All references to "Subscriber locations"
shall be deemed to include the location of Subscriber and such affiliate
depository institutions as applicable. UVEST shall use all reasonable efforts
expeditiously to open and operate such number of UVEST Centers at such ]ocations
as may from time to time be designated by Subscriber and approved by UVEST. At
Subscriber's request and with UVEST's approval, UVEST shall transfer any UVEST
Center then being operated at any of Subscriber's locations which is being
closed or relocated to a different location. Subscriber is not granted exclusive
rights to UVEST Services in any territory or location. UVEST may enter into
agreements with other Subscribers and operate UVEST Centers at any other
locations selected by UVEST.
4. Subscriber's Obligations. Subscriber shall use all reasonable efforts to
provide the facilities and personnel and to cooperate with UVEST and to do all
other acts and things required by this Agreement to be provided or done by
Subscriber, to permit UVEST to open and operate the UVEST Centers in accordance
with the terms of this Agreement. Subscriber further agrees that it shall not
permit any other broker-dealer to offer brokerage services at any of
Subscriber's locations during the term of this Agreement.
5. UVEST Program. The "UVEST Program" consists of the following services
which UVEST shall provide:
<PAGE>
(a) Brokerage Services. Registered representatives of UVEST at the UVEST
Centers operated at Subscriber's locations and at the national UVEST offices
will, subject to all applicable laws, rules, regulations and procedures,
including those of the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers, Inc. (the "NASD"), and subject to
the terms and conditions hereof, execute purchases and sales of Securities (as
hereinafter defined) for UVEST customers, including depositors and other
customers of Subscriber and the general public. As used herein, the term
"Security" or "Securities" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended, and shall also include all other financial
instruments or products included in the UVEST Program from time to time,
including without limitation, debt and equity instruments, mutual funds,
variable annuities, fixed annuities and other financial instruments and products
approved by appropriate regulatory authorities from time to time for sale
(directly or indirectly) by financial institutions. UVEST may retain one or more
clearing brokers to perform order execution, billing, collection, account
surveillance and other services for UVEST which are customarily performed by
clearing brokers.
UVEST shall give notice to Subscriber of any change in the clearing brokers it
uses to perform such services and will endeavor to give such notice prior to
such change. In order to execute such purchase and sale orders, UVEST shall
establish and maintain cash and/or margin accounts for customers, such accounts
to be maintained as accounts of UVEST or its clearing broker. UVEST reserves the
right, in its sole discretion, to refuse to open any account or to execute any
order by any customer for the purchase or sale of a Security, which right shall
not be unreasonably exercised. Subscriber agrees that such right shall not have
been unreasonably exercised if UVEST believes in good faith that such an account
or such Security or transaction is not appropriate or suitable for such
customer.
(b) Investment Advisory Services. Registered representatives of UVEST at
the UVEST Centers operated at Subscriber's locations and at the national UVEST
offices, subject to compliance with and registration under all applicable laws,
rules and regulations and subject to the terms and conditions hereof, will
provide investment advice and recommendations to UVEST customers (in accordance
with each UVEST customer's suitability profile and investment goals) based upon
research conducted by, and recommendations obtained from, investment advisory
services and UVEST's internal research group. UVEST shall determine the number
of registered representatives which shall staff each UVEST Center located at one
of Subscriber's locations, which number shall be subject to approval by
Subscriber. Such determination shall in all events be subject to Subscriber's
approval of the registered representatives as provided in Section 8(b) hereof.
(c) Marketing, Education, Research and Technical Services. UVEST will
provide Subscriber with marketing, education, research and technical services,
which will include:
2
<PAGE>
1. advice and assistance regarding the selection of Subscriber's
locations at which UVEST shall open and operate UVEST Centers;
2. advice and assistance regarding the placement and set-up of the
UVEST Center at Subscriber's locations;
3. advice and assistance regarding the identification, recruiting,
obtaining licenses, and registration of qualified personnel who will act as
Dual Employees (as defined below) and regarding the training of such
persons to qualify as registered representatives;
4. advice and assistance regarding the structuring of incentive-based
compensation programs for Dual Employees (as defined below);
5. advice and assistance regarding the structuring of incentive
programs for Non-Dual-Employees (as defined below) for referrals;
6. advice and assistance regarding sales management and support at the
UVEST Centers and UVEST's national office;
7. UVEST-sponsored advertising and general marketing assistance for
the promotion of the UVEST Program;
8. advice and assistance regarding, and review and approval of,
Subscriber-sponsored advertising and promotion of the UVEST Program and
general marketing assistance;
9. post-qualification training of Subscriber's Dual Employees and
materials for the orientation of Non-Dual Employees (as defined below) with
respect to the UVEST Program;
10. compliance and procedures manuals, and administration thereof, for
the operation of the UVEST Program;
11. advice and assistance regarding each UVEST Center, including
designation and segregation from the remainder of the lobby area at such
location of Subscriber;
12. advice and assistance regarding UVEST's BRIMS technology platform
and related services;
3
<PAGE>
13. advice and assistance regarding all other standard furnishings,
accessories, equipment and supplies required to make the UVEST Centers at
Subscriber's locations operational;
14. centralized investment research;
15. national inquiry/help desks;
16. phone-in service for use by UVEST customers during non-regular
business hours as set forth in Section 11 hereof,
17. monitoring of compliance at the UVEST Centers with applicable
laws, rules and regulations and with UVEST's manuals, rules, procedures and
instructions, including maintaining books and records for the securities
accounts of each customer serviced by UVEST as required by SEC Rule 17a-3a
and other applicable laws, rules and regulations;
18. monitoring of relevant laws, rules and regulations affecting the
UVEST Program and the operation of the UVEST Centers;
19. disbursement of Revenue Sharing Payments (as defined below); and
20. such other services as may from time to time be outlined in the
UVEST comphance manual
6. Modification of UVEST Program. The UVEST Program is a uniform program
owned and operated by UVEST. Subject to the provisions of Section 26 hereof,
UVEST may modify the UVEST Program from time to time for the intended purpose of
meeting applicable regulatory requirements, making the UVEST Program more
effective, efficient, economical or competitive, adapting to new technology or
conditions or enhancing the reputation or public acceptance of the UVEST
Program.
7. Revenue Sharing Payments.
(a) UVEST shall make payments to Subscriber with respect to all
Securities transactions which occur at, or are attributable to, the UVEST
Centers operated at Subscriber's locations ("Revenue Sharing Payments"), in
accordance with UVEST's schedule of Revenue Sharing Payments in effect from
time to time. UVEST's current schedule of Revenue Sharing Payments is set
forth on Schedule 1 attached to this Agreement. Revenue Sharing Payments
represent reimbursement for compensation of the Dual Employees and payment
for the use of the facilities and equipment of Subscriber or its affiliate
depository institutions, as applicable, required for the operation of the
UVEST Centers. The Board of Directors of UVEST may, after careful
consideration, amend the Revenue Sharing Payments schedule from time to
time
4
<PAGE>
during the term of this Agreement. UVEST shall notify Subscriber not less
than 30 days in advance of any reduction in the percentage of Revenue
Sharing Payments, which reduction shall take effect on the date specified
in such notice; provided, no decrease in the percentage of Revenue Sharing
Payments shall be permitted within 12 months after the Effective Date; and
provided, further, Subscriber may terminate this Agreement by giving notice
to UVEST within 30 days following UVEST's notice of any such reduction in
the percentage of Revenue Sharing Payments. If Subscriber gives a notice of
termination to UVEST pursuant to this Section 7(a), this Agreement will
terminate 60 days following such notice and the reduction in the percentage
of Revenue Sharing Payments shall not apply to Revenue Sharing Payments
payable to Subscriber prior to such termination.
(b) UVEST reserves the right to deduct from Revenue Sharing Payments
(i) all costs, expenses, charges and fees, if any, payable by Subscriber to
UVEST pursuant to this Agreement and (ii) an amount equal to 75% of all
losses, costs and expenses, if any, incurred by UVEST, directly or
indirectly, as the result of the failure of any UVEST customer of a UVEST
Center operated at any of Subscriber's locations to meet any obligation to
deliver any funds or Securities, to meet any margin call or to meet any
other obligation pursuant to UVEST's agreement to perform Securities
brokerage and investment advisory services for such person; provided, that
(A) UVEST shall use such efforts as are customary in the securities
brokerage business to mitigate the losses, costs and expenses referred to
in clause (ii) above prior to making any deduction therefor from
Subscriber's Revenue Sharing Payments and (B) in no event shall
Subscriber's liability pursuant to the preceding clause (ii) exceed the
amount of Revenue Sharing Payments eamed by Subscriber pursuant to this
Agreement after the date of such loss. UVEST shall make Revenue Sharing
Payments to Subscriber prior to the last day of the following calendar
month with respect to all Securities transactions for which it has received
commissions through the end of the immediately preceding calendar month.
Each Revenue Sharing Payment shall be accompanied by a complete record of
transactions and, if applicable, of any costs, expenses, charges or fees
incurred by Subscriber and deducted from such Revenue Sharing Payment.
8. Dual Employees. At the UVEST Centers operated at Subscriber's locations,
Securities transactions shall be effected, and investment advice and
recommendations shall be disseminated, only by registered representatives of
UVEST, who shall at all times be registered and qualified with the SEC, the
NASD, and all other applicable federal and state securities and insurance laws
(including without limitation investment advisor laws); and who shall undertake
such employment by UVEST in addition to their employment by Subscriber. Such
persons are referred to in this Agreement as "Dual Employees" or "registered
representatives." Each Dual Employee shall enter into an employment agreement
with UVEST, in a form to be provided by UVEST and agreed to by Subscriber,
setting forth the terms of the Dual Employee's employment as a registered
representative. Neither Subscriber nor any of its affiliate depository
institutions shall have any responsibility for supervision of the Securities
brokerage and investment advisory services performed by the Dual Employees or
for compliance by the Dual Employees with UVEST's standards of conduct or
5
<PAGE>
procedures established for such persons and, except as set forth in Sections
8(d), 8(e) and 8(f) hereof, shall not be obligated to notify UVEST regarding any
Dual Employee's acts.
(a) Compensation. Subscriber shall pay the compensation of the Dual
Employees in amounts to be determined by Subscriber and UVEST. UVEST shall
reimburse Subscriber for such compensation payments by means of Revenue
Sharing Payments. Except to the extent permitted by federal and state
securities and banking laws, rules and regulations, neither UVEST nor
Subscriber shall compensate any Dual Employee, directly or indirectly,
based upon the volume of Securities transactions, commissions or Revenue
Sharing Payments generated by any Dual Employee, the Subscriber or any
UVEST Center. Any portion of a Dual Employee's compensation based on such a
volume shall be subject to the mutual approval of Subscriber and UVEST.
Subscriber shall comply with all of UVEST's instructions for the
implementation of the foregoing restrictions regarding the compensation of
the Dual Employees. Subscriber agrees to maintain payroll and bonus records
for each Dual Employee, to withhold payroll taxes from the compensation of
each Dual Employee, and to remit payroll taxes for each Dual Employee
(including the employer's portion of any such taxes) to the appropriate
government agencies in compliance with applicable law. UVEST shall have the
right to inspect the payroll and bonus records maintained by Subscriber for
each Dual Employee. In addition, Subscriber shall transmit to UVEST no less
often than annually, and promptly following UVEST's request, a copy of each
Dual Employee's W-2 Form or such information with respect to the
compensation of any or all of the Dual Employees in such form as UVEST may
otherwise prescribe.
(b) Number; Identification and Acceptability. Subscriber and UVEST
shall determine the individuals which shall receive offers of employment as
registered representatives of UVEST. If UVEST decides to make an offer of
employment to one of Subscriber's employees, to which Subscriber agrees,
Subscriber shall make available to UVEST upon UVEST's request all records
in Subscriber's possession which UVEST reasonably considers necessary, or
which are required by law, rule or regulation, in connection with such
person's employment, qualification and registration as a UVEST
representative. A UVEST representative may be assigned to more than one
UVEST Center.
(c) Training. The Dual Employees shall be required to pass one or more
examinations prescribed by law in order to qualify to act as registered
representatives. Prior to taking such examination(s), each Dual Employee
must successfully complete certain training, including a prescribed
pre-examination course. Such pre-examination training shall be provided at
Subscriber's expense by either UVEST or third-party vendors. UVEST shall
notify Subscriber of the availability of such training. UVEST shall provide
additional training of the Dual Employees with respect to the UVEST Program
subsequent to their qualification as registered representatives. Subscriber
shall not prevent the Dual Employees from being available to fully
participate in such pre- and post-qualification training and in such
further training, if any, as UVEST may provide.
6
<PAGE>
(d) Control by UVEST. UVEST shall exercise exclusive control of the
Dual Employees with respect to their conduct of Securities brokerage and
investment advisory activities at the UVEST Centers and UVEST shall cause
their conduct in such capacity to be governed in all respects
(i) by UVEST's compliance and procedures manuals and all other
manuals, procedures, rules and instructions of UVEST, current copies
of which UVEST has provided or will provide to Subscriber and such
Dual Employees, and
(ii) by applicable laws, rules, and regulations and policies of
applicable regulatory agencies, all as in effect from time to time.
Subscriber shall strictly honor such control relationship and, subject
to Section 25 hereof, neither it nor any of its affiliates, nor any
person related to any of them shall have any involvement whatsoever in
any of the Securities brokerage and investment advisory services
performed by the Dual Employees. UVEST alone shall exercise all rights
and remedies of the "Employer" set forth in the employment agreement
with each Dual Employee except as otherwise specified herein.
Notwithstanding the above, it is understood and agreed to between
UVEST and Subscriber that, to the extent that the loss is not
attributable to the negligence or other fault of either party, if any
Dual Employee embezzles or otherwise steals from UVEST, UVEST shall
bear such loss, and if any Dual Employee embezzles or otherwise steals
from Subscriber or any of its affiliates, Subscriber or such affiliate
shall bear such loss. It is further understood and agreed that any
loss due to a mysterious disappearance of funds from either UVEST or
Subscriber shall be borne by the party suffering such disappearance.
(e) Discipline. Each Dual Employee shall be subject to discipline
UVEST and by various federal and state regulatory authorities, Securities
exchanges, clearing corporations or associations, associations of
Securities brokers and dealers and certain other entities having
jurisdiction over the operation of the UVEST Centers and the conduct of the
Dual Employees. Subscriber shall cooperate with UVEST in all respects in
connection with the enforcement of any sanctions imposed by UVEST or by any
such entities against any Dual Employee. Such disciplinary measures may
include suspension or dismissal of any Dual Employee as a registered
representative of UVEST. In the event of any such suspension or dismissal,
Subscriber shall impose, upon UVEST's request, the same sanction with
respect to the Dual Employee's employment by Subscriber as it relates to
securities activities, and shall use its best efforts to cause any of its
affiliates who employ such Dual Employee in any capacity to impose the same
sanction with respect to the Dual Employee's employment by such affiliate
as it relates to securities activities. Unless a Dual Employee has been
suspended or barred by such a regulatory authority, UVEST will not
terminate or suspend a Dual Employee except in the event of material
non-compliance with UVEST's standards of conduct. Subscriber shall report
to UVEST any violation of any law, rule or regulation or of any of UVEST's
standards of conduct or procedures for registered representatives of which
Subscriber has knowledge, it being understood that Subscriber shall not
have any obligation to monitor the activities of the
7
<PAGE>
Dual Employees with regard to such laws, rules or regulations or UVEST's
standards of conduct or procedures established for such persons. Subscriber
shall notify UVEST in a manner calculated to give UVEST immediate notice of
any such violation and shall promptly thereafter confirm any such report in
writing to UVEST's compliance officer.
(f) Conduct of Subscriber's Business. In accordance with their
employment by both UVEST and Subscriber, the Dual Employees may conduct
business on behalf of Subscriber or its affiliate depository institutions
when not acting as registered representatives of UVEST. The conduct of
Subscriber's business by the Dual Employees shall be consistent with, and
subject to, the proisions of Section 12 hereof.
(g) Hiring of Employees. (i) Without the prior consent of UVEST,
Subscriber agrees that during the term of this Agreement and for a period
of one year after its termination, Subscriber will not, directly or
indirectly, hire, recruit, solicit or induce or adise or recommend to any
other person that such other person hire, recruit, solicit or induce any
person employed by UVEST, its subsidiaries or affiliates, excluding Dual
Employees, to terminate his or her employment with UVEST, its subsidiaries
or affiliates. Without violating the proisions of this Section 8(g),
Subscriber may hire, solicit or recommend the employment of any person
previously employed by UVEST, its subsidiaries or affiliates, if the
hiring, solicitation or recommendation occurs more than 60 days after the
effective date of such person's termination of employment with UVEST, its
subsidiaries or affiliates. (ii) Without the prior consent of Subscriber,
UVEST agrees that during the term of this Agreement and for a period of one
year after its termination, UVEST will not, directly or indirectly, hire,
recruit, solicit or induce or adise or recommend to any other person that
such other person hire, recruit, solicit or induce any person employed by
Subscriber, its subsidiaries or affiliates, excluding Dual Employees, to
terminate his or her employment with Subscriber, its subsidiaries or
affiliates. Without violating the proisions of this Section 8(g), UVEST may
hire, solicit or recommend the employment of any person previously employed
by Subscriber, its subsidiaries or affiliates, if the hiring, solicitation
or recommendation occurs more than 60 days after the effective date of such
person's termination of employment with Subscriber, its subsidiaries or
affiliates.
9. Indemnification.
(a) UVEST shall, provided Subscriber satisfies its obligations
hereunder, defend, indemnify and hold harmless Subscriber (and each person
or entity which controls Subscriber within the meaning of Section 20(a) of
the Securities Exchange Act of 1934, as amended or Section 15 of the
Securities Act of 1933, as amended), its affiliate depository institutions
and their respective directors, officers, agents and employees (other than
Dual Employees to the extent provided in Section 9(b) below), against any
and all losses, claims, damages, liabilities, actions, costs or expenses to
which such indemnified party may become subject to the extent
8
<PAGE>
such losses, claims, damages, liabilities, actions, costs or expenses arise
out of or are based upon:
(i) the failure of UVEST to remain a member of the NASD or to remain a
duly licensed broker-dealer under federal and state securities laws;
(ii) Any violation of federal or state securities or insurance laws
(including, without limitation, laws relating to the registration or
qualification as a broker-dealer, investment adisor or insurance
agent) by UVEST, its officers, its agents or its employees (including
Dual Employees, but only when such Dual Employees are acting in their
capacity as registered representatives of UVEST) arising out of the
purchase, sale, offer to purchase or offer to sell, or the furnishing
of investment advice with respect to, any Security at a UVEST Center;
(iii) any breach, default or violation of, under or with respect to
any of UVEST's duties, obligations, representations, warranties or
covenants contained in this Agreement; or
(iv) any negligence, gross negligence, recklessness or willful or
intentional misconduct of, or violation of any law by, UVEST or any
UVEST employee or agent (including any Dual Employee in his/her
capacity as a representative of UVEST).
UVEST agrees to maintain, in full force and effect, insurance in amounts
sufficient to meet its indemnification obligations under this Section 9(a),
in such form as shall be established by the UVEST Board of Directors from
time to time.
(b) In no event, however, shall such indemnification inure exclusively
to the personal benefit of any Dual Employee whose action or failure to act
was the cause of or resulted in the violation of federal or state
securities or insurance laws and in no event shall such indemnification
result in the payment of moneys to any such Dual Employee. In addition,
there shall be no indemnification under this Section 9(b) to the extent the
violation of federal or state securities or insurance laws was the result
of action or failure to act by a Dual Employee where such Dual Employee was
told to perform such action or to refrain from so acting by an officer of
Subscriber.
(c) Subscriber shall, provided UVEST satisfies its obligations
hereunder, defend, indemnify and hold harmless UVEST (and each person or
entity which controls UVEST within the meaning of Section 20(a) of the
Securities Exchange Act of 1934, as amended or Section 15 of the Securities
Act of 1933, as amended), its directors, officers, agents and employees
against any and all losses, claims, damages, liabilities, actions, costs or
expenses to which such indemnified party may become subject to the extent
such losses, claims, damages, liabilities, actions, costs or expenses arise
out of or are based upon:
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(i) the failure of Subscriber to comply with applicable federal and
state laws relating to Subscriber or its subsidiaries other than
federal or state securities or insurance laws relating to the offer or
sale of Securities, investment advisory services or broker-dealer
activities relating thereto except as contemplated by (ii) and (iii)
below;
(ii) the failure of Subscriber to obtain the approval of UVEST for any
advertising, promotional materials or marketing efforts for the UVEST
Program;
(iii) except as contemplated pursuant to Section 25 hereof,
interference by Subscriber or by any of its directors, officers,
agents or employees (including any Dual Employee acting in a capacity
other than as a provider of brokerage services) with UVEST's
supervision and control of Dual Employees with respect to their
conduct of securities brokerage and investment adisory activity at the
UVEST Centers;
(iv) the failure of Subscriber to maintain payroll and bonus records
for each Dual Employee, to withhold payroll taxes from the
compensation of each Dual Employee, and to remit payroll taxes for
each Dual Employee (including the employer's portion of any such
taxes) to the appropriate government agencies in compliance with
applicable law, which functions Subscriber has agreed to perform on
behalf of UVEST;
(v) the acts or omissions of Subscriber's Non-Dual Employees (as
defined below), except to the extent of acts or omissions where such
non-Dual Employee was told to perform such action or to refrain from
so acting by any employee of UVEST, including a Dual Employee;
(vi) any breach, default or violation of, under or with respect to any
of Subscriber's duties, obligations, representations, warranties or
covenants contained in this Agreement; or
(vii) any negligence, gross negligence, recklessness or willful or
intentional misconduct of Subscriber or any Subscriber employee or
agent (excluding any Dual Employee acting in his/her capacity as a
representative of UVEST).
(d) Promptly after receipt by an indemnified party under this Section
9 of notice of any claim or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the party to this Agreement from which it is seeking
indemnification under this Section 9, notify such other party in writing of
such claim or the commencement of such action, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any
liability it may have to any indemnified party, except to the extent that
the indemnifying party demonstrates that its liability for such action is
prejudiced by the indemnifying party's failure to give notice. In case any
such action is brought against any indemnified party, and such indemnified
party notifies UVEST or Subscriber, as appropriate, of
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the commencement thereof, as provided herein, UVEST or Subscriber, as
appropriate, shall be entitled to participate therein and, at its option,
assume the defense thereof. Upon assumption by UVEST or Subscriber, as
appropriate, of the defense of such action, UVEST or Subscriber, as
appropriate, will cease to be liable to such indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
(e) An indemnified party hereunder shall settle a claim for which it
has requested or intends to request indemnification only with the consent
of the indemnifying party.
10. Non-Dual Employees.
(a) Limited activities. Employees of Subscriber or its affiliate
depository institutions who are not also registered representatives
("Non-Dual Employees") may distribute promotional literature regarding the
UVEST Program, direct persons to registered representatives of UVEST,
provide ordinary banking services such as crediting or debiting accounts,
even though such services are incident to transactions with UVEST, and
perform other clerical and ministerial tasks to the extent that employees
would perform such tasks in any other situation. Non-Dual Employees may not
recommend Securities, provide investment advice, hold themselves out as
agents of UVEST, or engage in any Securities brokerage or Securities
investment adisory activities to the extent that engaging in such
activities would require the Non-Dual Employees to register and qualify
with the NASD, as such requirements may be amended from time to time, or
would require the Subscriber or its affiliate depository institutions to
register as a broker-dealer under federal or state securities laws, as such
laws may be amended from time to time. Subscriber shall comply in all
respects with UVEST's Compliance Manual for UVEST participants
("Participants' Compliance Manual"), as it may be modified from time to
time, shall monitor the activities of, and cause compliance by, Non-Dual
Employees with UVEST's standards of conduct established for such persons
and shall report to UVEST, in the manner set forth in Section 8(e) hereof,
any violations of such standards of conduct of which Subscriber has
knowledge. Neither UVEST nor Subscriber shall furnish incentive
compensation to any Non-Dual Employee or otherwise compensate any Non-Dual
Employee, directly or indirectly, based upon the volume or occurrence of
Securities transactions, commissions or compensation generated by UVEST or
any UVEST Center; provided that, when permitted by regulators and
applicable law, Subscriber may pay referral fees to Non-Dual Employees.
Such referral fees shall be a one-time, per-customer fee of a nominal,
fixed-dollar amount, wholly unrelated to the execution of Securities
transactions or the volume of Securities traded by the customer.
(b) Training. UVEST shall make materials available to assist
Subscriber in training Non-Dual Employees regarding standards of conduct
and permissible activities in connection with the UVEST Program. Subscriber
or its affiliate depository institutions shall make Non-Dual Employees
available from time to time to participate in such training.
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11. Hours of Operation. Registered representatives of UVEST located at the
national UVEST offices in Charlotte, NC will be available by telephone to
provide Securities brokerage and investment adisory services to UVEST customers
during all New York Stock Exchange trading hours.
12. Separation of Businesses. UVEST and Subscriber, including Subscriber's
affiliate depository institutions, shall each maintain strict and total
separation of their businesses from the business conducted at each UVEST Center,
including separation of records and of physical facilities. All Dual Employees
shall conduct business at all times in accordance with UVEST's corporate
identity policies, as expressed in Participant's Compliance Manual and herein,
so as not to lead to confusion between the business conducted by Subscriber and
the business conducted by UVEST through the operation of the UVEST Centers at
Subscriber's locations. Subscriber agrees to be bound by, and to comply in all
material respects with, the Participants' Compliance Manual, a current copy of
which UVEST has provided or will provide to Subscriber and which, as it may be
modified from time to time in accordance with the purposes set forth in Section
6 hereof, is incorporated in and made a part of this Agreement.
13. Access.
(a) UVEST supervisory personnel and representatives of state and
federal regulatory authorities and of any other entity having jurisdiction
over the operation of the UVEST Centers and the conduct of the Dual
Employees shall have unimpeded access during Subscriber's business hours to
the UVEST Centers, to all records maintained in connection with the
operation of the UVEST Centers and to Dual Employees and their personnel
records. At the time UVEST desires to exercise such access, UVEST shall
notify the manager of the branch in which the UVEST Center being accessed
is located and the Investment Program Manager of Subscriber and inform the
manager and such Investment Program Manager of the purpose of the visit.
(b) In addition to any rights of Subscriber and its affiliate
depository institutions pursuant to Section 25 hereof, the supervisory
personnel of Subscriber or its affiliate depository institutions and
representatives of their respective state and federal regulatory
authorities and any other entity having jurisdiction over any of them or
the transactions contemplated under this Agreement shall have unimpeded
access during UVEST's business hours to all records of UVEST relating to
transactions effected hereunder.
14. Subscriber Costs and Expenses.
(a) Direct Costs and Expenses. Subscriber shall be directly
responsible for the costs and expenses associated with the following items
in connection with the operation of the UVEST Centers at Subscriber's
locations:
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1. the furnishings, accessories and equipment necessary to
establish the UVEST Center, including a BRIMS technology platform
2. the service and maintenance for the BRIMS technology
platform;
3. investment research material employed in the UVEST
Center;
4. telephones and other operating equipment;
5. Dual Employee compensation (which will be reimbursed to
Subscriber through Revenue Sharing Payments as provided herein)
and Dual Employee costs, including, without limitation,
recruitment costs, salary and benefits, travel (including but not
limited to any travel associated with pre-qualification or
post-qualification training), cost of pre-qualification training
and prescribed pre-examination course, examination fees and
filing fees and UVEST's corporate stationery and business cards;
6. Dual Employee post-qualification sales training
materials;
7. recruitment costs, salary and benefits for any support
personnel;
8. Subscriber-sponsored advertising and promotion; and
9. all other costs associated with the operation of the
UVEST Centers at Subscriber's locations and not specified in
Section 15 hereof. Subscriber shall pay all costs and expenses
set forth in this Section 14 directly to third-party vendors or
to UVEST or the Dual Employees, in accordance with UVEST's
applicable standard procedures and fee schedules, each as in
effect from time to time. In the UVEST Centers at Subscriber's
locations, Subscriber and UVEST shall mutually approve the
furnishings, furniture, fixtures and materials to be used by
UVEST in the operation of the UVEST Center. UVEST may from time
to time, following notice to Subscriber, eliminate one or more of
Subscriber's direct costs or expenses.
(b) Indirect Costs and Expenses. With approval from Subscriber,
UVEST shall from time to time furnish to each UVEST Center promotional
literature in reasonable quantities determined by UVEST. Subscriber
shall pay for such items furnished in excess of such reasonable
quantities and/or requiring customization at a charge to Subscriber
equal to UVEST's cost for such items, which shall be based upon the
cost of development, production or purchase, shipping, handling,
billing and any applicable taxes.
15. UVEST Costs and Expenses. UVEST shall be directly responsible for
the following costs and expenses in connection with the operation of the
UVEST Program:
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1. all costs associated with the operation of UVEST's offices
other than at Subscriber's locations, including centralized investment
research, national and regional inquiry/help desks for use by UVEST
registered representatives and phone-in service for use by UVEST
customers during non-regular business hours as set forth in Section 11
hereof;
2. all costs associated with the recruitment, training,
qualification and employment by UVEST of all UVEST employees who are
not also employees of Subscriber;
3. post-qualification training of Subscriber's Dual Employees and
materials for the orientation of Non-Dual Employees regarding the
UVEST Program;
4. reasonable quantities of promotional literature furnished from
time to time to each UVEST Center;
5. UVEST-sponsored advertising and promotion of the UVEST
Program;
6. technical assistance program;
7. compliance and supervision; and
8. field sales support and related travel expenses.
16. Advertising and Promotion. Each party shall secure the other
party's prior written approval of all advertising and promotional
materials, if any, prepared by or on behalf of such party which mention the
other party or the UVEST Program. All such advertising and promotional
materials shall make it clear that the UVEST Program is provided by UVEST
and not by Subscriber, that UVEST and Subscriber are separate, distinct and
unaffiliated entities, and that the investment products sold through UVEST
Centers by UVEST are not deposits insured by the FDIC. Subject to the
provisions of Section 25 hereof, UVEST may use Subscriber's name and may
identify Subscriber's locations at which the UVEST Centers are operated.
UVEST and Subscriber shall also meet prior to or as soon as possible after
the opening of the first UVEST Center at one of Subscriber's locations to
develop a comprehensive six-month business plan to promote and develop the
UVEST Program for the Subscriber. Thereafter, UVEST and Subscriber shall
meet approximately every six months to review the performance of the
business plan for the prior six months and to develop a new business plan
for the succeeding six months. The cost of such meetings shall be shared
equally by UVEST and Subscriber.
17. Vendor Relationships. In addition to being solely responsible for
the investment research regarding Securities, UVEST shall be solely
responsible for all contracts and discussions with all vendors of
Securities regarding the quality or investment characteristics of such
Securities, their availability and all other matters related to such
Securities, and UVEST shall be solely responsible for all other aspects of
the relationship between such vendors and the UVEST Program.
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18. Bankruptcy, Changes in Control, Etc. Any party hereto (the
"defaulting party") shall give the other party hereto prompt written notice
in the event that such defaulting party (i) liquidates or dissolves; (ii)
makes an assignment for the benefit of creditors, becomes insolvent or is
unable to pay its debts as they mature, files a voluntary petition in
bankruptcy or a petition, answer or consent seeking reorganization or
readjustment of its indebtedness under applicable bankruptcy or insolvency
laws, consents to the appointment of a receiver or trustee for all or a
substantial part of its property or takes corporate or other action for the
purpose of effecting any of the foregoing; (iii) has filed against it a
petition for proceedings in bankruptcy or for its reorganization or for the
readjustment of its indebtedness under applicable bankruptcy or insolvency
laws or has a receiver or trustee appointed for it or for all or a
substantial part of its property; or (iv) experiences a change in control
through merger, consolidation or reorganization in a transaction in which
such party is not the surviving entity, a sale of substantially all of its
assets or, to the extent known by such defaulting party, the acquisition by
any person or related group of 25% or more of its outstanding equity
interest. The non defaulting party shall have the right to terminate this
Agreement upon the happening of any such event.
19. Term. This Agreement shall have an initial term of two years and
shall automatically renew for subsequent terms of one year, subject to
termination as provided in Section 20 hereof.
20. Arbitration; Termination; Suspension.
(a) UVEST and Subscriber shall work together in good faith to
resolve any dispute arising between them. If UVEST and Subscriber
cannot resolve such dispute after a good faith attempt to do so,
either party may submit such dispute to arbitration in Philadelphia,
Pennsylvania such arbitration to be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
The arbitration award shall be final and binding. Judgment upon the
award rendered may be entered in any court having jurisdiction over
the party against which the award is rendered. Nothing in this Section
20(a) shall prevent UVEST or Subscriber from exercising any other
rights which they have pursuant to this Section 20 or otherwise
pursuant to this Agreement in connection with such a dispute;
provided, however, that once a dispute has been submitted to
arbitration, neither party shall pursue a remedy with respect to such
dispute unless such remedy is specifically delineated herein.
(b) Either party may terminate this Agreement as of the end of
the initial term by giving notice to the other party at least 90 days
prior to the end of the initial term. If neither party gives notice of
termination within the initial term, this Agreement will automatically
renew for subsequent terms as provided in Section 19. Either party may
terminate this Agreement after the initial term upon 90 days prior
notice.
(c) UVEST may immediately suspend performance under this
Agreement, and may thereafter terminate this Agreement pursuant to the
procedures set forth in this Section 20(c), in the event of a material
breach by Subscriber in the performance of any material
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agreement made by Subscriber under this Agreement, including, without
limitation, any failure of Subscriber to comply in any material
respect with any of the manuals identified in Section 12 hereof. UVEST
shall promptly notify Subscriber of the grounds for any such
suspension. Subscriber shall have 30 days following such notice to
resolve the matter(s) specified therein to UVEST's satisfaction prior
to any termination of the Agreement. If Subscriber fails to resolve
any such matter(s) within the prescribed time and UVEST does not agree
in writing to extend the period for resolution of any such matter(s),
UVEST may terminate this Agreement upon the expiration of such 30-day
period. In addition, UVEST may terminate this Agreement upon notice to
Subscriber if Subscriber directly or indirectly offers or makes
available Securities brokerage or broker-dealer services or Securities
investment advisory products or services.
(d) Subscriber may terminate this Agreement pursuant to the
procedures set forth in this Section 20(d), in the event of a material
breach by UVEST in the performance of any material agreement made by
UVEST under this Agreement. Subscriber shall promptly notify UVEST of
the grounds for any such termination. UVEST shall have 30 days
following such notice to cure the breach specified herein. If UVEST
fails to cure any such breach within such 30-day period and Subscriber
does not agree in writing to extend the period fOr cure of such breach
or UVEST does cure such breach but the same breach occurs within 90
days from the original breach, Subscriber may terminate this Agreement
upon the expiration of such 30-day period or upon the occurrence of
such second breach. Subscriber shall have the additional rights to
terminate this Agreement provided in Section 7(a) hereof
(e) At any point during the Initial Term or in subsequent terms,
subscriber may opt to terminate this agreement and exercise the UVEST
Service Bureau Agreement (Attachment A).
(f) Certain federal and state regulatory authorities may require
the termination of this Agreement on behalf of UVEST or Subscriber. In
the event of such a termination, whether made on behalf of UVEST or
Subscriber, (i) neither party hereto shall have any liability to the
other for such termination except to the extent such termination
results from the failure of one party to satisfy its obligations
hereunder, in which case such failing party shall be liable to the
other party to the extent it otherwise would have been liable for such
failure, and (ii) certain provisions of this Agreement, as specified
in Section 25 hereof, shall survive such termination as provided
herein.
(g) In the event that UVEST or Subscriber terminates this
Agreement or a governmental authority requires the termination of this
Agreement, (i) Subscriber shall immediately cease representing itself
as a participant in the UVEST Program, discontinue use of all UVEST
materials and all materials bearing the UVEST logo, service mark or
trademark; and (ii) Subscriber shall return to UVEST all records
relating to UVEST's brokerage accounts, all UVEST procedures and
compliance manuals and all UVEST forms and documents and shall so
certify in writing to UVEST within ten days of the date of
termination.
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(h) Upon the termination of this Agreement by either UVEST,
Subscriber or any governmental authority, neither UVEST nor Subscriber
shall interfere with the decision of any customer or Dual Employee
regarding his brokerage accounts or employment, respectively.
Subscriber acknowledges that UVEST shall not be deemed to be
interfering with any customer as a result of UVEST performing its
obligations or sending customary notices with respect to any customer
or any such customer's accounts. UVEST agrees to cooperate in the
transfer of records relating to customer accounts to the Subscriber or
a broker/dealer designated by the Subscriber. After termination of
this Agreement, UVEST shall not provide information with respect to
such accounts to any other broker/dealer or financial institution nor
shall information with respect to such accounts be used by UVEST after
such transfer.
(i) Nothing in this Agreement shall be deemed or construed to
create a partnership or joint venture between the Subscriber and
UVEST. The relationship between such parties is only contractual in
nature.
(j) UVEST will not engage in market-making with respect to any
Securities.
21. UVEST Trademark; No License or Right to Use. Subscriber recognizes
and acknowledges that UVEST is a registered service mark and a registered
trademark of UVEST. Subscriber is not granted a license or right to use
UVEST's UVEST service mark or trademark. Subscriber shall not use the UVEST
service mark or trademark in any manner whatsoever without the prior
written consent of UVEST and any use of the UVEST service mark or trademark
by Subscriber pursuant to such written consent shall comply in all respects
with the terms thereof.
22. Additional Representations and Warranties of Subscriber.
Subscriber represents and warrants to UVEST that (i) Subscriber has full
legal right, power and authority to enter into and perform this Agreement;
(ii) this Agreement has been duly authorized, executed and delivered by
Subscriber and constitutes the legal, valid and binding agreement of
Subscriber; and (iii) no consent, approval, authorization or order of any
governmental agency or authority, except (A) those previously obtained by
Subscriber, disclosed to UVEST and in full force and effect, and (B) those
which have been disclosed to UVEST in writing and are to be obtained by
Subscriber, is required in connection with the transactions contemplated by
this Agreement on the part of Subscriber. Subscriber agrees to use its best
efforts to obtain all consents, approvals, authorizations and orders
necessary in connection with its performance under this Agreement which
have not been obtained as of the date hereof. Subscriber agrees that once
all of such consents, approvals, authorizations and orders have been
obtained, it will certify such fact to UVEST in writing. Subscriber further
acknowledges that UVEST shall not perform its obligations pursuant hereto
until it receives such certification. Subscriber further represents and
warrants that, to the extent permitted by law, it shall use its best
efforts, upon request by UVEST, to verify any information or
representations in the possession of Subscriber made by one of its
depositors or customers, or any other potential customer of UVEST,
contained or set forth in an Application for Account or any other
questionnaire submitted by such potential customer to UVEST in conjunction
with the opening or attempted opening of an account with UVEST. Subscriber
further represents that, except as may otherwise be required by law, it
shall keep confidential all information
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not generally available to the public which it may acquire as a result of
this Agreement regarding the business or affairs of UVEST, or any of its
affiliates, and further acknowledges that this covenant shall survive the
termination of this Agreement until such information shall become generally
available to the public.
23. Representations and Warranties of UVEST. UVEST represents and
warrants to Subscriber that (i) UVEST has full legal right, power and
authority to enter into and perform this Agreement; (ii) this Agreement has
been duly authorized, executed and delivered by UVEST and constitutes the
legal, valid and binding agreement of UVEST; (iii) UVEST has obtained all
consents, approvals, authorizations and orders of governmental agencies or
authorities required in connection with the transactions contemplated by
this Agreement on the part of UVEST; including, without limitation, receipt
from the Securities and Exchange Commission of a "no-action letter," dated
November 24, 1992, which ("no-action letter") has not been modified or
rescinded as of the date hereof, (iv) UVEST is registered as a
broker-dealer and an investment adisor under federal and state securities
laws and is a member of the NASD and, during the term of this Agreement,
UVEST will maintain such registrations and membership as required by
applicable law. UVEST further represents that, except as may otherwise be
required by law, it shall keep confidential all information not generally
available to the public which it may acquire as a result of this Agreement
regarding the business or affairs of Subscriber, or any of its affiliates,
and further acknowledges that this covenant shall survive the termination
of this Agreement until such information shall become generally available
to the public.
24. Notices. All notices, requests, approvals, consents or other
communications required or permitted to be delivered hereunder shall be in
writing, delivered personally or forwarded by certified mail, postage
prepaid, to the address set forth on the signature page hereof and shall be
deemed duly given when so personally delivered or three business days after
the date of deposit in a mail box or other U.S. Postal Service depository
outside the control of the sender. Either party may from time to time
designate in writing any other address to which such notices, requests and
other communications shall be sent. Until any such change, such notices,
requests and other communications shall be sent to the address of the
appropriate party as set forth on the final page of this Agreement.
25. Compliance with Interagency Statement. Notwithstanding any
provision contained in this Agreement to the contrary, UVEST shall cause
all aspects of the UVEST Program (including, without limitation,
designation of the UVEST Centers in Subscriber's locations, training and
compensation of Dual Employees and Non-Dual Employee, manner and content of
disclosures to customers and advertising and promotional activities) to be
conducted in accordance and conformity with the Interagency Statement on
Retail Sales of Non-deposit Investment Products, dated February 15, 1994,
published by the Board of Governors of the Federal Reserve System, the
Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation and the Office of Thrift Supervisions, as such statement has
been and hereafter may be amended from time to time (the "Interagency
Statement"). In accordance with their responsibilities under Interagency
Statement and various other laws, rules, regulations and policies of their
respective regulatory agencies as in effect from time to time, Subscriber
and its affiliate depository institutions on whose premises the activities
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contemplated by this Agreement are conducted may from time to time review
the sales and other activities of the Dual Employees and the other
operations of the UVEST Centers to confirm that such activities and
operations are being conducted in a manner consistent with such Interagency
Statement and any such laws, rules, regulations and policies, and in
connection therewith to review such records of UVEST as the Subscriber or
such affiliate deems necessary or appropriate to evaluate such compliance.
Any such review or investigation shall not relieve UVEST from its
obligations hereunder to operate all aspects of the UVEST Program in
accordance with such Interagency Statement and any such additional laws,
rules, regulations and policies.
26. Miscellaneous.
(a) This Agreement and the materials incorporated herein by
reference constitute the entire understanding of the parties with
respect to its subject matter. Neither party may assign this Agreement
(either voluntarily or by operation of law) without the prior written
consent of the other party, except that UVEST, or Subscriber to the
extent permitted by applicable law, may assign its rights under this
Agreement to a subsidiary or affiliate. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by and
against, the successors and permitted assigns of each of the parties,
subject only to the rights of federal and state regulatory authorities
to terminate this Agreement under certain circumstances. This
agreement and all provisions hereof are for the sole and exclusive
benefit of the parties hereto and, in the case of Subscriber, any
subsidiary or affiliate depository institutions on whose premises the
activities contemplated hereby may be conducted. Nothing expressed or
referred to in this Agreement will be construed to give any other
person any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision hereof.
(b) Subscriber recognizes and acknowledges that failure by
Subscriber to comply with the provisions of this Agreement regarding
permitted use by Subscriber of the UVEST logo, service mark and
trademark, UVEST equipment, signs, materials, furnishings and supplies
and items bearing the UVEST logo, service mark or trademark may result
in damage to UVEST for which monetary compensation would be
inadequate. Subscriber therefore agrees that UVEST shall be entitled
to specific performance of Subscriber's obligations pursuant to such
provisions.
(c) Neither party shall be liable to the other for special,
indirect or consequential damages (including lost revenues or lost
profits) arising out of any breach of its obligations under this
Agreement other than the parties' respective obligations to indemnify
each other pursuant to Section 9 hereof.
(d) Except to the extent specified in Section 20(a) hereof, the
enumeration herein of specific remedies shall not be exclusive of any
other remedies and no single, partial or other exercise of any such
right, power, remedy or privilege shall preclude the further exercise
thereof or the exercise of any other right, power, remedy or
privilege. Any delay or failure by any party to this Agreement to
exercise any right, power, remedy or privilege herein contained,
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or now or hereafter existing under any applicable statute or law,
shall not be construed to be a waiver of such right, power, remedy or
privilege or to limit the exercise of such right, power, remedy or
privilege.
(e) Neither Subscriber nor UVEST shall hold itself out as an
agent of the other or any of the subsidiaries or the companies
controlled directly or indirectly by or affiliated with the other.
(f) This Agreement may be modified only by a writing signed by
both parties to this Agreement. Such modification shall not be deemed
a cancellation of this Agreement.
(g) In the event that any court of competent jurisdiction
declares invalid any provision of this Agreement, such invalidity
shall have no effect on the other provisions hereof, which shall
remain valid and binding and in full force and effect, and to that end
the provisions of this Agreement shall be considered severable;
provided, however, that should any court of competent jurisdiction
declare invalid any material provision of this Agreement, severance of
which would frustrate the purpose of this Agreement, such provision
shall not be severable, and this Agreement shall be voidable by either
party hereto.
(h) UVEST shall have each customer acknowledge in writing the
receipt of notice that (i) UVEST, and not Subscriber, is providing and
is responsible for the brokerage services being offered and (ii) UVEST
is not affiliated with Subscriber. Such notice and acknowledgment may
be a part of the customer's application for an account with UVEST.
(i) Subscriber, at a time mutually acceptable to Subscriber and
UVEST, may inspect those records of UVEST pertaining to commissions
and other revenue generated by the UVEST Centers in locations of
Subscriber or its affiliates.
(j) All such signs bearing the UVEST logo, service mark or
trademark shall remain the property of UVEST and shall be used by
Subscriber's locations only in connection with the UVEST Program and
the business conducted at the UVEST Centers.
(k) This Agreement has been accepted by UVEST in, and shall be
construed in accordance with the statutory and common laws of, the
State of Pennsylvania, except to the extent such laws may be preempted
by federal laws, rules or regulations.
(1) The headings preceding the text, articles and sections hereof
have been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this
Agreement.
(m) The provisions of Sections 9, 15 (to the extent such costs
are incurred prior to termination), 22 and 23 (to the extent such
Sections relate to confidentiality concerning
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UVEST's or Subscriber's business), and 20(g), 26(b) and (c) hereof shall
survive the termination of this Agreement.
(n) This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all
such counterparts shall together constitute but one and the same
instrument. It shall not be necessary to make proof of but one such
counterpart in any court of law having jurisdiction with regard to
this Agreement or any dispute arising pursuant hereto.
(o) Any list of Subscriber's customers, whether provided to UVEST by
Subscriber or compiled by UVEST in any other manner, shall be
considered the property of Subscriber and shall be held in strictest
confidence by UVEST. Any such list may not be sold or used for any
purpose other than those provided for and contemplated by this
Agreement, without first obtaining Subscriber's written approval.
(p) Each party hereto covenants and agrees that it will not permit a
Year 2000 problem in computer systems, software or equipment owned,
leased or licensed by it, its affiliates or subsidiaries to interfere
with its performance under this Agreement. The parties hereto will use
reasonable commercial efforts to cooperate and share information to
further comply with this Section 26 and to minimize the impact of any
Year 2000 problem on performance of this Agreement. Each party will
inform the other party of any circumstance indicating a possible
obstacle such compliance and the steps being taken to avoid or
overcome the obstacle.
Provided a party complies with this Section 26, it will not be liable
to the other party for any failure to perform obligations under the
Agreement to the extent that such failure arises from a Year 2000
problem (1) affecting one of the non-performing party's suppliers or
(2) beyond that party's reasonable control (such as, a Year 2000
problem affecting a government entity). In particular, such
non-performing party shall have no liability for any damages,
including direct, indirect, incidental, special, consequential,
punitive or exemplary damages.
A "Year 2000 problem" means a date-handling problem relating to the
Year 2000 date change that would cause a computer system, software or
equipment to fail to correctly perform, process and handle
date-related data and processes for these dates within and between the
twentieth and twenty-first centuries and all other centuries.
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IN WITNESS WHEREOF, UVEST and Subscriber have executed this Agreement as of the
date set forth above.
UVEST FINANCIAL SERVICES BRYN MAWR BROKERAGE COMPANY
GROUP, INC. INC.
By [SIGNATURE APPEARS HERE] By [SIGNATURE APPEARS HERE]
----------------------------------- -------------------------------
Title PRESIDENT & CEO Title PRESIDENT & CEO
-------------------------------- -----------------------------
Address of UVEST for notices hereunder: Address of Subscriber for notices
hereunder:
UVEST Financial Services Group, Inc. Bryn Mawr Brokerage Company, Inc.
128 S. Tryon Street, Suite 1340 801 Lancaster Avenue
Charlotte, NC 28202 BrynMawr, PA 19010
Attention: Dan Arnold, President
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UVEST FINANCIAL SERVICES GROUP, INC.
Brokerage Services Agreement
SCHEDULE 1
Revenue Sharing Payments
for
BRYN MAWR BROKERAGE COMPANY, INC.
Subscriber shall be entitled to the following percentage(s) of gross commissions
generated by the purchase or sale of Securities (as defined herein) through
registered representatives located in UVEST Centers in Subscriber's branches:
For monthly gross commissions of: Percentage* of gross commissions
Payable to Subscriber
$20,000 or less 75%
$20,001 and above 80%
*Percentages are applied only to the marginal increase in the stated
commissions.
Subscriber shall be entitled to the following percentage(s) of gross commissions
generated by the purchase or sale of Securities for large account cases as
defined below. At no point shall the commissions generated on large cases
contribute to the commission grid above.
Account case: Percentage of gross commissions
Principal Invested Payable to Subscriber
$2 M -$5 M 85%
$5 M- $1OM 87%
$10 M+ 89%
Subscriber shall be entitled to the following percentage(s) of gross commissions
generated by the purchase or sale of Variable Life for large account cases as
defined below. At no point shall the commissions generated on large cases
contribute to the commission grid above.
Account case: Percentage of gross commissions
Commission Generated Payable to Subscriber
$15,000 $30,000 85%
$30,001 - $40,000 87%
$40,001+ 89%
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*Clearing Charges of $20 per transaction will be deducted from Subscriber's
revenue sharing payment on a monthly basis in accordance with the terms in
Section 7(b) of this Agreement. Clearing Charges will not be charged on
systematic investments after the initial transaction is made.
Subscriber shall be entitled to 20% of gross commissions, no clearing charges,
generated by the purchase or sale of Securities (as defined herein) under the
UVEST discount commission schedule
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BROKERAGE SERVICES AGREEMENT
(Service Bureau Program)
(Attachment A)
THIS AGREEMENT, dated as of _______________________ is by and between
UVEST FINANCIAL SERVICES GROUP, INC., a North Carolina corporation doing
business as UVEST ("UVEST"), and the financial institution whose name appears on
the final page of this Agreement ("Subscriber").
THE PARTIES AGREE AS FOLLOWS:
1) Effective Date. This Agreement shall bind UVEST and Subscriber when
executed by an authorized representative of each party. The date of this
Agreement is referred to as the "Effective Date."
2) UVEST Services. UVEST is a broker-dealer registered with the Securities and
Exchange Commission ("SEC") and is a member of the National Association of
Securities Dealers, Inc., (NASD) and provides certain securities brokerage
services under its UVEST trademark.
3) Subscriber Services. Subscriber is a broker-dealer "registered with the
Securities and Exchange Commission and is a member of the National
Association of Securities Dealers, Inc.," and provides certain securities
brokerage services ("Subscriber Services") under its trademark to the
general public through the operation of Subscriber service centers
("Subscriber Centers") located within Subscriber's branches.
4) Subscriber's Obligations. Subscriber shall use all reasonable efforts to
provide the facilities and personnel, to cooperate with UVEST and to do all
other acts and things required by this Agreement to be provided or done by
Subscriber. Subscriber further agrees that it shall not permit any other
broker-dealer to offer brokerage services at any of Subscriber's locations
during the term of this Agreement.
Subscriber agrees to be bound by, and to comply in all material respects
with, the Participants' Compliance Manual, a current copy of which UVEST
has provided or will provide to Subscriber and which, as it may be modified
from time to time in accordance with the purposes set forth in Section 6
hereof, is incorporated in and made a part of this Agreement.
Subscriber shall provide Subscriber's affiliate depository institutions
with policies and procedures for monitoring the Subscriber Services
conducted at Subscriber Centers in accordance with the Interagency
Statement on Retail Sales of Non-deposit Investment Products, dated
February 15, 1994, published by the Board of Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and the Office of Thrift Supervisions, as
such statement has been and hereafter may be amended from time to time (the
"Interagency Statement"). In accordance with Subscriber's responsibilities
under the Interagency Statement and various other laws, rules, regulations
and policies of their respective regulatory agencies as in effect from time
to time, Subscriber and its affiliate depository institutions on whose
premises the activities contemplated by this Agreement are conducted will
from time to time review the sales and other activities of the Registered
Representatives and the other operations of the Subscriber Centers to
confirm that such activities and operations are being conducted in a manner
consistent with such Interagency Statement and any such laws, rules,
regulations and policies.
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5) UVEST Program. The "UVEST program" consists of the following services,
which UVEST shall provide:
a) Brokerage Services. UVEST is subject to all applicable laws, rules,
regulations and procedures, including those of the Securities and Exchange
Commission ("SEC") and the National Association of Securities Dealers, Inc.
("NASD"), and subject to the terms and conditions hereof. As used herein,
the term "Security" or "Securities" shall have the meaning set forth in the
Securities Exchange Act of 1934, as amended, and shall also include all
other financial instruments or products included in the UVEST Program from
time to time, including without limitation, debt and equity instruments,
mutual funds, variable annuities, fixed annuities and other financial
instruments and products approved by appropriate regulatory authorities
from time to time for sale (directly or indirectly) by financial
institutions. UVEST may retain one or more clearing brokers to perform
order execution, billing, collection, account surveillance and other
services for UVEST, which are customarily performed by clearing brokers.
UVEST shall give notice to Subscriber of any change in the clearing brokers
it uses to perform such services and will endeavor to give such notice
prior to such change. In order to execute such purchase and sale orders,
UVEST shall establish and maintain cash and/or margin accounts for
customers, such accounts to be maintained as accounts of UVEST/Subscriber
or its clearing broker. UVEST reserves the right, in its sole discretion,
to refuse to open any account or to execute any order by any customer for
the purchase or sale of a Security, which right shall not be unreasonably
exercised. Subscriber agrees that such right shall not have been
unreasonably exercised if UVEST believes in good faith that such an account
or such Security or transaction is not appropriate or suitable for such
customer.
b) Marketing, Education, Research and Technical Services. UVEST will provide
Subscriber with compliance, operations, and technical services, which will
include:
i) advice and assistance regarding, and review and approval of,
Subscriber-sponsored advertising and promotion of Subscriber services;
ii) post-qualification training of subscriber's Registered
Representatives;
iii) compliance and procedures manuals, and administration thereof, for
the operation of the UVEST Program;
iv) advice and assistance regarding each Subscriber Center, including
designation and segregation from the remainder of the lobby area at
such location of Subscriber;
v) advice and assistance regarding UVEST's news/quote terminal,
sales technology and related services;
vi) advice and assistance regarding all other accessories, equipment
and supplies required to make the Subscriber Centers at
Subscriber's locations operational;
vii) centralized investment research;
viii)broker service support/help desk;
ix) phone-in service for use by Subscriber's customers during
non-regular business hours;
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x) monitoring of compliance with applicable laws, rules and regulations
and with UVEST manuals, rules, procedures and instructions at the
Subscriber Centers;
xi) monitoring of relevant laws, rules and regulations affecting the
UVEST Program and the operation of the Subscriber Centers;
xii) trading and disbursement of Revenue Sharing Payments (as defined
below); and general marketing assistance for the promotion of
Subscriber's services;
xiii)general marketing assistance for the promotion of Subscriber's
services;
xiv) such other services as may from time to time be outlined in the UVEST
compliance or sales support manuals.
6) Modification of UVEST Program. The UVEST Program is a uniform program owned
and operated by UVEST. Subject to the provisions of Section 22 hereof,
UVEST may modify the UVEST Program from time to time for the intended
purpose of meeting applicable regulatory requirements, making the UVEST
Program more effective, efficient, economical or competitive, or adapting
to new technology or conditions.
7) Revenue Sharing Payments.
a) UVEST shall make payments to Subscriber with respect to all Securities
transactions, which occur at, or are attributable to, the Subscriber
Centers operated at Subscriber's locations ("Revenue Sharing Payments"), in
accordance with Schedule 1 ("Revenue Sharing Payments") attached to this
Agreement. Revenue Sharing Payments represent reimbursement for
compensation of the Registered Representatives and payment for the use of
the facilities and equipment of Subscriber or its affiliate depository
institutions, as applicable. The Board of Directors of UVEST may, after
careful consideration, amend the Revenue Sharing Payments schedule from
time to time during the term of this Agreement. UVEST shall notify
Subscriber not less than 30 days in advance of any reduction in the
percentage of Revenue Sharing Payments, which reduction shall take effect
on the date specified in such notice; provided, no decrease in the
percentage of Revenue Sharing Payments shall be permitted within 12 months
after the Effective Date; and provided, further, Subscriber may terminate
this Agreement by giving notice to UVEST within 30 days following UVEST's
notice of any such reduction in the percentage of Revenue Sharing Payments.
If Subscriber gives a notice of termination to UVEST pursuant to this
Section 7(a), this Agreement will terminate 60 days following such notice
and the reduction in the percentage of Revenue Sharing Payments shall not
apply to Revenue Sharing Payments payable to Subscriber prior to such
termination.
b) UVEST reserves the right to deduct from Revenue Sharing Payments (i) all
costs, expenses, charges and fees, if any, payable by Subscriber to UVEST
pursuant to this Agreement and (ii) an amount equal to all losses, costs
and expenses, if any, incurred by UVEST, directly or indirectly, as the
result of the failure of any customer of a Subscriber Center operated at
any of Subscriber's locations to meet any obligation to deliver any funds
or Securities, to meet any margin call or to meet any other obligation
pursuant to UVEST's agreement to perform Securities brokerage services for
Subscriber; provided that UVEST shall use such efforts as are customary in
the securities brokerage business to mitigate the losses, costs and
expenses referred to in clause (ii) above prior to making any deduction
therefor from Subscriber's Revenue Sharing Payments. UVEST shall make
Revenue Sharing Payments to Subscriber by the 15th day of the following
calendar month with respect to all Securities transactions for which it has
received commissions through the end of the immediately preceding calendar
month. Each Revenue Sharing Payment shall be accompanied by a complete
record of
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transactions and, if applicable, of any costs, expenses, charges or fees
incurred by Subscriber and deducted from such Revenue Sharing Payment.
8) Registered Representatives. At the Subscriber Centers operated at
Subscriber's locations, Securities transactions shall be effected, and
investment advice and recommendations shall be disseminated, only by
Registered Representatives of Subscriber, who shall at all times be
registered and qualified with the SEC, the NASD, and all other applicable
federal and state securities and insurance laws (including without
limitation investment advisor laws):
a) Compensation. Subscriber shall pay the compensation of the Registered
Representatives in amounts to be determined by Subscriber. Except to the
extent permitted by federal and state securities and banking laws, rules
and regulations, neither UVEST nor Subscriber shall compensate any
Registered Representative, directly or indirectly, based upon the volume of
Securities transactions, commissions or Revenue Sharing Payments generated
by any Registered Representative or the Subscriber Center. Any portion of a
Registered Representative's compensation based on such a volume shall be
subject to the mutual approval of Subscriber and UVEST. Subscriber agrees
to maintain payroll and bonus records for each Registered Representative,
to withhold payroll taxes from the compensation of each Registered
Representative, and to remit payroll taxes for each Registered
Representative (including the employer's portion of any such taxes) to the
appropriate government agencies in compliance with applicable law. UVEST
shall have the right to inspect the payroll and bonus records maintained by
Subscriber for each Registered Representative.
b) Control by Subscriber. Subscriber shall exercise control of the Registered
Representatives with respect to their conduct of Securities brokerage and
investment advisory activities at the Subscriber Centers and shall cause
their conduct in such capacity to be governed in all respects
i) by UVEST/Subscriber compliance and procedures manuals and all other
manuals, procedures, rules and instructions of UVEST and Subscriber,
current copies of which UVEST and Subscriber will provide to
Registered Representatives, and
ii) by applicable laws, rules, and regulations and policies of applicable
regulatory agencies, all as in effect from time to time.
Notwithstanding the above, it is understood and agreed to between
UVEST and Subscriber that, to the extent that the loss is not
attributable to the negligence or other fault of either party, if any
Registered Representative embezzles or otherwise steals from UVEST,
UVEST or from Subscriber or any of its affiliates, Subscriber or such
affiliate shall bear such loss.
c) Discipline. Each Registered Representative shall be subject to discipline
by Subscriber and by various federal and state regulatory authorities,
Securities exchanges, clearing corporations or associations, associations
of Securities brokers and dealers and certain other entities having
jurisdiction over the operation of the Subscriber Centers and the conduct
of the Registered Representatives. Subscriber and UVEST shall cooperate in
all respects in connection with the enforcement of any sanctions imposed by
any such entities against any Registered Representative.
d) Hiring of Employees.
i) Without the prior consent of UVEST, Subscriber agrees that during the
term of this Agreement and for a period of one year after its
termination, Subscriber will not, directly or indirectly, hire,
recruit, solicit or induce or advise or recommend to any other person
that such other person hire, recruit, solicit or induce any person
employed by UVEST, its subsidiaries or affiliates, to
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<PAGE>
terminate his or her employment with UVEST, its subsidiaries or
affiliates. Without violating the provisions of this Section 8(d),
Subscriber may hire, solicit or recommend the employment of any
person previously employed by UVEST, its subsidiaries or affiliates,
if the hiring, solicitation or recommendation occurs more than 60
days after the effective date of such person's termination of
employment with UVEST, its subsidiaries or affiliates.
ii) Without the prior consent of Subscriber, UVEST agrees that during
the term of this Agreement and for a period of one year after its
termination, UVEST will not, directly or indirectly, hire, recruit,
solicit or induce or advise or recommend to any other person that
such other person hire, recruit, solicit or induce any person
employed by Subscriber, its subsidiaries or affiliates, to terminate
his or her employment with Subscriber, its subsidiaries or
affiliates. Without violating the provisions of this Section 8(d)
UVEST may hire, solicit or recommend the employment of any person
previously employed by Subscriber, its subsidiaries or affiliates,
if the hiring, solicitation or recommendation occurs more than 60
days after the effective date of such person's termination of
employment with Subscriber, its subsidiaries or affiliates.
9) Indemnification.
a) UVEST shall, provided Subscriber satisfies its obligations hereunder,
defend, indemnify and hold harmless Subscriber (and each person or entity
which controls Subscriber within the meaning of Section 20(a) of the
Securities Exchange Act of 1934, as amended or Section 15 of the
Securities Act of 1933, as amended), its affiliate depository
institutions and their respective directors, officers, agents and
employees (other than Registered Representatives to the extent provided
in Section 9(b) below), against any and all losses, claims, damages,
liabilities, actions, costs or expenses to which such indemnified party
may become subject to the extent such losses, claims, damages,
liabilities, actions, costs or expenses arise out of or are based upon:
i) The failure of UVEST to remain a member of the NASD or to remain a
duly licensed broker-dealer under federal and state securities laws;
ii) any violation of federal or state securities or insurance laws
(including, without limitation, laws relating to the registration or
qualification as a broker-dealer, investment advisor or insurance
agent) by UVEST, its officers, its agents or its employees;
iii) any breach, default or violation of, under or with respect to any of
UVEST's duties, obligations, representations, warranties or
covenants contained in this Agreement; or
iv) any negligence, gross negligence, recklessness or willful or
intentional misconduct of, or violation of any law by, UVEST or any
UVEST employee.
UVEST agrees to maintain, in full force and effect, insurance in amounts
sufficient to meet its indemnification obligations under this Section
9(a), in such form as shall be established by the UVEST Board of
Directors from time to time.
b) In no event, however, shall such indemnification inure exclusively to the
personal benefit of any Registered Representative whose action or failure
to act was the cause of or resulted in the violation of federal or state
securities or insurance laws and in no event shall such indemnification
result in the payment of moneys to any such Registered Representative.
c) Subscriber shall, provided UVEST satisfies its obligations hereunder,
defend, indemnify and hold harmless UVEST (and each person or entity
which controls UVEST within the meaning of Section
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20(a) of the Securities Exchange Act of 1934, as amended or Section 15 of
the Securities Act of 1933, as amended), its directors, officers, agents
and employees against any and all losses, claims, damages, liabilities,
actions, costs or expenses to which such indemnified party may become
subject to the extent such losses, claims, damages, liabilities, actions,
costs or expenses arise out of or are based upon:
i) the failure of Subscriber to remain a member of the NASD or to
remain a duly licensed broker dealer under federal and state
securities laws;
ii) the failure of Subscriber to comply with applicable federal and
state laws relating to Subscriber or its affiliated depository
institutions;
iii) the failure of Subscriber to maintain payroll and bonus records for
each Registered Representative, to withhold payroll taxes from the
compensation of each Registered Representative, and to remit payroll
taxes for each Registered Representative (including the employer's
portion of any such taxes) to the appropriate government agencies in
compliance with applicable law;
iv) the acts or omissions of Subscriber's employees, except to the
extent where such employee was told to perform such action or to
refrain from so acting by any employee of UVEST;
v) any breach, default or violation of, under or with respect to any of
Subscriber's duties, obligations, representations, warranties or
covenants contained in this Agreement; or
vi) any negligence or gross negligence, recklessness or willful or
intentional misconduct of Subscriber or any Subscriber employee or
agent.
d) Promptly after receipt by an indemnified party under this Section 9 of
notice of any claim or the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
party to this Agreement from which it is seeking indemnification under
this Section 9, notify such other party in writing of such claim or the
commencement of such action, but the failure to notify the indemnifying
party will not relieve the indemnifying party of any liability it may
have to any indemnified party, except to the extent that the indemnifying
party demonstrates that its liability for such action is prejudiced by
the indemnifying party's failure to give notice. In case any such action
is brought against any indemnified party' and such indemnified party
notifies UVEST or Subscriber, as appropriate, of the commencement
thereof, as provided herein, UVEST or Subscriber, as appropriate, shall
be entitled to participate therein and, at its option, assume the defense
thereof. Upon assumption by UVEST or Subscriber, as appropriate, of the
defense of such action, UVEST or Subscriber, as appropriate, will cease
to be liable to such indemnified party under this Section 9 for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof.
e) An indemnified party hereunder shall settle a claim for which it has
requested or intends to request indemnification only with the consent of
the indemnifying party.
10) Separation of Businesses. Subscriber and Subscriber's affiliate
depository institutions shall each maintain strict and total separation
of their businesses, including separation of records and of physical
facilities, and shall conduct its business so as not to lead to confusion
between the business conducted by Subscriber and its affiliate depository
institutions and the Subscriber Program conducted at each Subscriber
Center.
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11) Subscriber Costs and Expenses.
a) Direct costs and expenses. Subscriber shall be directly responsible
for the costs and expenses associated with the following items in
connection with the operation of Subscriber Centers at Subscriber's
locations:
i) the furnishings, accessories and equipment necessary to establish
the Subscriber Center, including a news/quote terminal;
ii) the service and maintenance for the sales technology terminal;
iii) equity investment research employed in the Subscriber Center;
iv) telephones and other operating equipment;
v) Registered Representative compensation and related costs,
including, without limitation, recruitment costs, salary and
benefits, travel (including but not limited to any travel
associated with pre-qualification or post-qualification
training), cost of pre-qualification training and prescribed
pre-examination course, examination fees and filing fees and
corporate stationery and business cards;
vi) Registered Representative post-qualification sales training
materials;
vii) Recruitment costs, salary and benefits for any support personnel;
viii)All other costs associated with the operation of the Subscriber
Centers at Subscriber's locations not specified in Section 12
hereof Subscriber shall pay all costs and expenses set forth in
this Section 11 directly to third-party vendors or to UVEST or to
the Registered Representative(s), in accordance with UVEST's
applicable standard procedures and fee schedules, each as in
effect from time to time.
b) Indirect Costs and Expenses. With approval from Subscriber, UVEST
shall from time to time furnish to each Subscriber Center promotional
literature in reasonable quantities determined by UVEST. Subscriber
shall pay for such items furnished in excess of such reasonable
quantities and/or requiring customization at a charge to Subscriber
equal to UVEST's cost for such items, which shall be based upon the
cost of development, production or purchase, shipping, handling,
billing and any applicable taxes.
12) UVEST Costs and Expenses. UVEST shall be directly responsible for the
following costs and expenses in connection with the operation of the
UVEST Program:
a) all costs associated with the operation of UVEST's offices other than
at Subscriber's locations, including centralized investment research,
national and regional inquiry/help desks for use by Subscriber's
Registered Representatives and phone-in service for use by UVEST
customers during non-regular business hours;
b) all costs associated with the recruitment, training, qualification and
employment by UVEST of all UVEST employees;
c) UVEST-sponsored advertising and promotion;
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d) technical assistance program;
e) compliance and supervision; and
f) field sales support and related travel expenses.
13) Advertising and Promotion. Subscriber shall secure UVEST's prior
written approval of all advertising and promotional materials, if any
prepared by or on behalf of Subscriber which mention UVEST or the
UVEST Program. UVEST and Subscriber shall also meet prior to or as
soon as possible after the opening of the first Subscriber Center at
one of Subscriber's locations to develop a comprehensive six-month
business plan to promote and develop Subscriber's Program. Thereafter,
UVEST and Subscriber shall meet approximately every six months to
review the performance of the business plan for the prior six months
and to develop a new business plan for the succeeding six months.
UVEST and Subscriber shall share the cost of such meetings equally.
14) Bankruptcy Changes in Control, etc. Any party hereto (the "defaulting
party") shall give the other party hereto prompt written notice in the
event that such defaulting party
a) liquidates or dissolves;
b) makes an assignment for the benefit of creditors, becomes insolvent or
is unable to pay its debts as they mature, files a voluntary petition
in bankruptcy or a petition, answer or consent seeking reorganization
or readjustment of its indebtedness under applicable bankruptcy or
insolvency laws, consents to the appointment of a receiver or trustee
for all or a substantial part of its property or takes corporate or
other action for the purpose of effecting any of the foregoing;
c) has filed against it a petition for proceedings in bankruptcy or for
its reorganization or for the readjustment of its indebtedness under
applicable bankruptcy or insolvency laws or has a receiver or trustee
appointed for it or for all or a substantial part of its property; or
d) experiences a change in control through merger, consolidation or
reorganization in a transaction in which such party is not the
surviving entity, a sale of substantially all of its assets or, to the
extent known by such defaulting party, the acquisition by any person
or related group of 25% or more of its outstanding equity interest.
The non-defaulting party shall have the right to terminate this
Agreement upon the happening of any such event.
15) Term. This Agreement shall have an initial term of two years and shall
automatically renew for subsequent terms of one year, subject to
termination as provided in Section 16 hereof.
16) Arbitration; Termination; Suspension.
a) UVEST and Subscriber shall work together in good faith to resolve any
dispute arising between them. If UVEST and Subscriber cannot resolve
such dispute after a good faith attempt to do so, either party may
submit such dispute to arbitration in Philadelphia, Pennsylvania such
arbitration to be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The
arbitration award shall be final and binding. Judgment upon the award
rendered may be entered in any court having jurisdiction over the
party against which the award is rendered. Nothing in this Section
16(a) shall prevent UVEST or Subscriber from exercising any other
rights which they have pursuant to this Section 16 or otherwise
pursuant to this Agreement in connection with such a dispute;
provided, however, that once a dispute has been submitted to
arbitration, neither
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party shall pursue a remedy with respect to such dispute unless such
remedy is specifically delineated herein.
b) Either party may terminate this Agreement as of the end of the initial
term by giving notice to the other party at least 90 days prior to the
end of the initial term. If neither party gives notice of termination
within the initial term, this Agreement will automatically renew for
subsequent terms as provided in Section 15. Either party may terminate
this Agreement after the initial term upon 90 days prior notice.
c) UVEST may immediately suspend performance under this Agreement, and
may thereafter terminate this Agreement pursuant to the procedures set
forth in this Section 16(c), in the event of the breach by Subscriber
in the performance of any material agreement made by Subscriber under
this Agreement, including, without limitation, any failure of
Subscriber to comply in any material respect with any of the manuals
identified in Section 4 hereof. UVEST shall promptly notify'
Subscriber of the grounds for any such suspension. Subscriber shall
have 30 days following such notice to resolve the matter(s) specified
therein to UVEST's satisfaction prior to any termination of the
Agreement. If Subscriber fails to resolve any such matter(s) within
the prescribed time and UVEST does not agree in writing to extend the
period for resolution of any such matter(s), UVEST may terminate this
Agreement upon the expiration of such 30-day period. In addition,
UVEST may terminate this Agreement upon notice to Subscriber if
Subscriber directly or indirectly offers or makes available Securities
brokerage or broker-dealer services or Securities investment advisory
products or services.
d) Subscriber may terminate this Agreement pursuant to the procedures set
forth in this Section 16(d) in the event of a material breach by UVEST
in the performance of any material agreement made by UVEST under this
Agreement. Subscriber shall promptly notify UVEST of the grounds for
any such termination. UVEST shall have 30 days following such notice
to cure the breach specified herein. If UVEST fails to cure any such
breach within such 30-day period and Subscriber does not agree in
writing to extend the period for cure of such breach or UVEST does
cure such breach but the same breach occurs within 90 days from the
original breach, Subscriber may terminate this Agreement upon the
expiration of such 30-day period or upon the occurrence of such second
breach. Subscriber shall have the additional rights to terminate this
Agreement provided in Section 16 hereof.
e) Certain federal and state regulatory authorities may require the
termination of this Agreement on behalf of UVEST or Subscriber. In the
event of such a termination, whether made on behalf of UVEST or
Subscriber,
i) neither party hereto shall have any liability to the other for
such termination except to the extent such termination results
from the failure of one party to satisfy' its obligations
hereunder, in which case such failing party shall be liable to
the other party to the extent it otherwise would have been liable
for such failure, and
ii) certain provisions of this Agreement, as specified in Section 22
hereof, shall survive such termination as provided herein.
f) In the event that UVEST or Subscriber terminates this Agreement or a
governmental authority requires the termination of this Agreement,
i) Subscriber shall immediately cease representing itself as a
participant in the UVEST Program, discontinue use of all UVEST
materials and all materials bearing the UVEST logo, service mark
or trademark; and
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ii) Subscriber shall return to UVEST all procedures and compliance
manuals and all UVEST forms and documents and shall so certify
in writing to UVEST within ten days of the date of termination.
g) Upon the termination of this Agreement by UVEST, Subscriber or any
governmental authority, neither UVEST nor Subscriber shall interfere
with the decision of any customer regarding his brokerage account(s).
Subscriber acknowledges that UVEST shall not be deemed to be
interfering with any customer as a result of UVEST performing its
obligations or sending customary notices with respect to any customer
or any such customers accounts. UVEST agrees to cooperate in the
transfer of records relating to customer accounts to the Subscriber or
a broker/dealer designated by the Subscriber. After termination of
this Agreement, UVEST shall not provide information with respect to
such accounts to any other broker/dealer or financial institution nor
shall information with respect to such accounts be used by UVEST after
such transfer.
g) Nothing in this Agreement shall be deemed or construed to create a
partnership or joint venture between the Subscriber and UVEST. The
relationship between such parties is only contractual in nature.
17) UVEST Trademark; No License or Right to Use. Subscriber recognizes and
acknowledges that UVEST is a registered service mark and a registered
trademark of UVEST. Subscriber is not granted a license or right to
use UVEST's UVEST service mark or trademark. Subscriber shall not use
the UVEST service mark or trademark in any manner whatsoever without
the prior written consent of UVEST and any use of the UVEST service
mark or trademark by Subscriber pursuant to such written consent shall
comply in all respects with the terms thereof.
18) Additional Representations and Warranties of Subscriber. Subscriber
represents and warrants to UVEST that
a) Subscriber has full legal right, power and authority to enter into and
perform this Agreement;
b) this Agreement has been duly authorized, executed and delivered by
Subscriber and constitutes the legal, valid and binding agreement of
Subscriber; and
c) no consent, approval, authorization or order of any governmental
agency or authority, except those previously obtained by Subscriber,
disclosed to UVEST and in full force and effect, and those which have
been disclosed to UVEST in writing and are to be obtained by
Subscriber, is required in connection with the transactions
contemplated by this Agreement on the part of Subscriber.
Subscriber agrees to use its best efforts to obtain all consents,
approvals, authorizations and orders necessary in connection with its
performance under this Agreement which have not been obtained as of
the date hereof. Subscriber represents and warrants that
(i) Subscriber is duly registered and in good standing as a
broker-dealer with the Securities and Exchange Commission (SEC)
and is a member firm in good standing of the National Association
of Securities Dealers, Inc. (NASD).
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(ii) Subscriber has all requisite authority, whether arising under
applicable federal or state laws or the rules and regulations of
any securities exchange or regulatory authority to which
Subscriber is subject, to enter into this Agreement and to retain
the services of Pershing in accordance with the terms hereof.
Subscriber further represents that, except as may otherwise be
required by law, it shall keep confidential all information not
generally available to the public which it may acquire as a result of
this Agreement regarding the business or affairs of UVEST, or any of
its affiliates, and further acknowledges that this covenant shall
survive the termination of this Agreement until such information shall
become generally available to the public.
19) Representations and Warranties of UVEST. UVEST represents and warrants
to Subscriber that
a) UVEST has full legal right, power and authority to enter into and
perform this Agreement;
b) this Agreement has been duly authorized, executed and delivered by
UVEST and constitutes the legal, valid and binding agreement of UVEST;
c) UVEST has obtained all consents, approvals, authorizations and orders
of governmental agencies or authorities required in connection with
the transactions contemplated by this Agreement on the part of UVEST;
including, without limitation, receipt from the Securities and
Exchange Commission of a "no-action letter," dated November 24, 1992,
which ("no-action letter") has not been modified or rescinded as of
the date hereof,
d) UVEST is registered as a broker-dealer and an investment advisor under
federal and states securities laws and is a member of the NASD and,
during the term of this Agreement, UVEST will maintain such
registrations and membership as required by applicable law.
UVEST further represents that, except as may otherwise be required by
law, it shall keep confidential all information not generally
available to the public which it may acquire as a result of this
Agreement regarding the business or affairs of Subscriber, or any of
its affiliates, and further acknowledges that this covenant shall
survive the termination of this Agreement until such information shall
become generally available to the public.
20) Notices. All notices, requests, approvals, consents or other
communications required or permitted to be delivered hereunder shall
be in writing, delivered personally or forwarded by certified mail,
postage prepaid, to the address set forth on the signature page hereof
and shall be deemed duly given when so personally delivered or three
business days after the date of deposit in a mail box or other U.S.
Postal Service depository outside the control of the sender. Either
party may from time to time designate in writing any other address to
which such notices, requests and other communications shall be sent
Until any such change, such notices, requests and other communications
shall be sent to the address of the appropriate party as set forth on
the final page of this Agreement.
21) Compliance with Interagency Statement. Notwithstanding any provision
contained in this Agreement to the contrary, UVEST shall cause all
aspects of the UVEST Program to be conducted in accordance and
conformity with the Interagency Statement.
22) Miscellaneous.
a) This Agreement and the materials incorporated herein by reference
constitute the entire understanding of the parties with respect to its
subject matter. Neither party may assign this
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Agreement (either voluntarily or by operation of law) without the
prior written consent of the other party, except that UVEST or
Subscriber, to the extent permitted by applicable law, may assign its
rights under this Agreement to a subsidiary or affiliate. This
Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against, the successors and permitted assigns of
each of the parties, subject only to the rights of federal and state
regulatory authorities to terminate this Agreement under certain
circumstances. This agreement and all provisions hereof are for the
sale and exclusive benefit of the parties hereto and, in the case of
Subscriber, any subsidiary or affiliate depository institutions on
whose premises the activities contemplated hereby may be conducted.
Nothing expressed or referred to in this Agreement will be construed
to give any other person any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision hereof.
b) Neither party shall be liable to the other for special, indirect or
consequential damages (including lost revenues or lost profits)
arising out of any breach of its obligations under this Agreement
other than the parties' respective obligations to indemnify each other
pursuant to Section 9 hereof.
c) Except to the extent specified in Section 16(a) hereof, the
enumeration herein of specific remedies shall not be exclusive of any
other remedies and no single, partial or other exercise of any such
right, power, remedy or privilege shall preclude the further exercise
thereof or the exercise of any other right, power, remedy or
privilege. Any delay or failure by any party to this Agreement to
exercise any right, power, remedy or privilege herein contained, or
now or hereafter existing under any applicable statute or law, shall
not be construed to be a waiver of such right, power, remedy or
privilege or to limit the exercise of such right, power, remedy or
privilege.
d) Neither Subscriber nor UVEST shall hold itself out as an agent of the
other or any of the subsidiaries or the companies controlled directly
or indirectly by or affiliated with the other.
e) Only writing signed by both parties to this Agreement may modify this
Agreement Such modification shall not be deemed a cancellation of this
Agreement.
f) In the event that any court of competent jurisdiction declares invalid
any provision of this Agreement, such invalidity shall have no effect
on the other provisions hereof, which shall remain valid and binding
and in full force and effect, and to that end the provisions of this
Agreement shall be considered severable; provided, however, that
should any court of competent jurisdiction declare invalid any
material provision of this Agreement, severance of which would
frustrate the purpose of this Agreement, such provision shall not be
severable, and this Agreement shall be voidable by either party
hereto.
g) Subscriber, at a time mutually acceptable to Subscriber and UVEST, may
inspect those records of UVEST pertaining to commissions and other
revenue generated by the Subscriber Centers in locations of Subscriber
or its affiliates.
h) This Agreement has been accepted by UVEST in, and shall be construed
in accordance with the statutory and common laws of, the State of
Pennsylvania, except to the extent such laws may be preempted by
federal laws, rules or regulations.
i) The headings preceding the text, articles and sections hereof have
been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this
Agreement.
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j) The provisions of Sections 9, 12 (to the extent such costs are
incurred prior to termination), 18 and 19 (to the extent such Sections
relate to confidentiality concerning UVEST's or Subscriber's
business), hereof shall survive the termination of this Agreement.
k) This Agreement may be executed in any number of counterparts; each of
which when so executed and delivered shall be an original, but all
such counterparts shall together constitute but one and the same
instrument It shall not be necessary to make proof of but one such
counterpart in any court of law having jurisdiction with regard to
this Agreement or any dispute arising pursuant hereto.
l) Any list of Subscriber's customers, whether provided to UVEST by
Subscriber or compiled by UVEST in any other manner, shall be
considered the property of Subscriber and shall be held in strictest
confidence by UVEST. Any such list may not be sold or used for any
purpose other than those provided for and contemplated by this
Agreement, without first obtaining Subscriber's written approval.
m) Each party hereto covenants and agrees that it will not permit a Year
2000 problem in computer systems, software or equipment owned, leased
or licensed by it, its affiliates or subsidiaries to interfere with
its performance under this Agreement The parties hereto will use
reasonable commercial efforts to cooperate and share information to
further comply with this Section 26 and to minimize the impact of any
Year 2000 problem on performance of this Agreement. Each party will
inform the other party of any circumstance indicating a possible
obstacle such compliance and the steps being taken to avoid or
overcome the obstacle.
Provided a party complies with this Section 26, it will not be liable
to the other party for any failure to perform obligations under the
Agreement to the extent that such failure arises from a Year 2000
problem (1) affecting one of the non-performing party's suppliers or
(2) beyond that party's reasonable control (such as, a Year 2000
[problem affecting a government entity). In particular, such
non-performing party shall have no liability for any damages,
including direct, indirect, incidental, special, consequential,
punitive or exemplary damages.
A "Year 2000 problem" means a date-handing problem relating to the
Year 2000 date change that would cause a computer system, software or
equipment to fail to correctly perform, process and handle
date-related data and processes for these dates within and between the
twentieth and twenty-first centuries and all other centuries.
IN WITNESS WHEREOF, UVEST and Subscriber have executed this Agreement
as of the date set forth above.
UVEST FINANCIAL SERVICES BRYN MAWR BROKERAGE COMPANY
GROUP, INC.
By___________________________ By_____________________________
Title________________________ Title__________________________
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Address of UVEST for notices hereunder:
UVEST Financial Services Group, Inc.
128 South Tryon Street, Suite 1340
Charlotte, NC 28202
Attention: Dan Arnold, President and COO
Address of Subscriber for notices hereunder:
Bryn Mawr Brokerage Company, Inc.
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
Attention: Tom Petro
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UVEST FINANCIAL SERVICES GROUP, INC.
Brokerage Services Agreement
SCHEDULE 1
Revenue Sharing Payments
Subscriber shall be entitled to the following percentage(s) of gross commissions
generated by the purchase or sale of Securities (as defined herein) through
registered representatives located in UVEST Centers in Subscriber's branches:
For monthly gross commissions of: Percentage* of gross commissions
Payable to Subscriber
$20,000 or less 75%
$20,001 and above 80%
*Percentages are applied only to the marginal increase in the stated
commissions.
Subscriber shall be entitled to the following percentage(s) of gross commissions
generated by the purchase or sale of Securities for large account cases as
defined below. At no point shall the commissions generated on large cases
contribute to the commission grid above.
Account case: Percentage of gross commissions
Principal Invested Payable to Subscriber
$2 M-$5M 85%
$5 M-$lOM 87%
$10 M+ 89%
Subscriber shall be entitled to the following percentage(s) of gross commissions
generated by the purchase or sale of Variable Life for large account cases as
defined below. At no point shall the commissions generated on large cases
contribute to the commission grid above.
Account case: Percentage of gross commissions
Commission Generated Payable to Subscriber
$15,000 $30,000 85%
$30,001 - $40,000 87%
$40,00l+ 89%
*Clearing Charges of $20 per transaction will be deducted from Subscriber's
revenue sharing payment on a monthly basis in accordance with the terms in
Section 7(b) of this Agreement. Clearing Charges will not be charged on
systematic investments after the initial transaction is made.
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