<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934.
For Quarter ended June 30, 1999 Commission File Number
-------------- 0-15261
-------
Bryn Mawr Bank Corporation
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and fiscal year, if changed since last report.
Indicate by check whether the registrant (1) has filed all reports to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class
- -------------------------- Outstanding at July 30, 1999
Common Stock, par value $1 4,341,407
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED June 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the six
months ended June 30, 1999 and 1998..............Page 1
Consolidated Statements of Income for the three
months ended June 30, 1999 and 1998..............Page 2
Consolidated Balance Sheets as of June 30, 1999,
December 31, 1998 and June 30, 1998..............Page 3
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998..............Page 4
Consolidated Statements of Comprehensive Income for
the six months ended June 30, 1999 and 1998....Page 5
Notes to Consolidated Financial Statements............Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...Page 11
PART II - OTHER INFORMATION................................Page 24
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars In Thousands*)
Unaudited
Six Months Ended
June 30
1999 1998**
--------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans................................................. $ 12,334 $ 11,310
Interest on federal funds sold............................................. 345 388
Interest on interest bearing deposits with banks........................... 74 40
Interest and dividends on investment securities:
U.S. Treasury securities........................................... 157 372
U.S. Government Agency securities.................................. 776 630
Obligations of states and political subdivisions................... 102 111
Dividend income.................................................... 41 43
--------- ---------
Total interest and dividend income................................................. 13,829 12,894
Interest expense on deposits....................................................... 2,680 3,042
--------- ---------
Net interest income................................................................ 11,149 9,852
Loan loss provision................................................................ 125 50
--------- ---------
Net interest income after loan loss provision...................................... 11,024 9,802
--------- ---------
Other Income:
Fees for Trust services............................................ 5,040 4,538
Service charges on deposits................................................ 581 568
Other service charges, commissions and fees................................ 486 451
Net gain on sale of loans.................................................. 630 759
Net gain on sale of other real estate owned................................ 6 195
Other operating income..................................................... 2,844 826
--------- ---------
Total other income................................................................. 9,587 7,337
--------- ---------
Other expenses:
Salaries and wages......................................................... 7,331 6,132
Employee benefits.......................................................... 1,292 1,065
Occupancy and bank premises................................................ 910 665
Furniture, fixtures, and equipment......................................... 968 826
Other operating expenses................................................... 4,376 3,337
--------- ---------
Total other expenses............................................................... 14,877 12,025
--------- ---------
Income before income taxes......................................................... 5,734 5,114
Applicable income taxes............................................................ 1,890 1,740
--------- ---------
Net Income......................................................................... $ 3,844 $ 3,374
========= =========
Earnings per common share.......................................................... $0.88 $0.78
Earnings per common share assuming dilution........................................ $0.84 $0.74
Cash dividends declared............................................................ $0.30 $0.23
Weighted-average shares outstanding................................................ 4,365,061 4,342,894
Dilutive potential common shares................................................... 222,470 224,710
--------- ---------
Adjusted weighted-average shares................................................... 4,587,531 4,567,604
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
** Reclassified for comparative purposes.
FORM 10-Q
1
<PAGE>
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars In Thousands*)
Unaudited
Three Months Ended
June 30
1999 1998**
---------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans......................................... $ 6,607 $ 5,758
Interest on federal funds sold..................................... 112 168
Interest on interest bearing deposits with banks................... 30 10
Interest and dividends on investment securities:
U.S. Treasury securities................................... 55 183
U.S. Government Agency Securities.......................... 321 291
Obligations of states and political subdivisions........... 51 60
Dividend income............................................ 21 24
---------- -----------
Total interest income...................................................... 7,197 6,494
Interest expense on deposits............................................... 1,336 1,514
---------- -----------
Net interest income........................................................ 5,861 4,980
Loan loss provision........................................................ 62 25
---------- -----------
Net interest income after loan loss provision.............................. 5,799 4,955
---------- -----------
Other income:
Fees for Trust services............................................ 2,622 2,360
Service charges on deposits........................................ 305 301
Other service charges, commissions and fees........................ 173 232
Net gain on sale of loans.......................................... 280 394
Net gain on sale of other real estate owned........................ 6 109
Other operating income............................................. 1,541 516
---------- -----------
Total other income......................................................... 4,927 3,912
---------- -----------
Other expenses:
Salaries and wages................................................. 3,919 3,236
Employee benefits.................................................. 630 515
Occupancy and bank premises........................................ 503 344
Furniture, fixtures, and equipment................................. 458 426
Other operating expenses........................................... 2,324 1,848
---------- -----------
Total other expenses....................................................... 7,834 6,369
---------- -----------
Income before income taxes................................................. 2,892 2,498
Applicable income taxes.................................................... 890 870
---------- -----------
Net Income................................................................. 2,002 1,628
========== ===========
Earnings per common share.................................................. $0.46 $0.38
Earnings per common share - assuming dilution.............................. $0.44 $0.36
Cash dividends declared.................................................... $0.15 $0.115
Weighted-average shares outstanding........................................ 4,349,093 4,330,764
Dilutive potential common shares........................................... 218,037 227,514
---------- -----------
Adjusted weighted-average shares........................................... 4,567,130 4,558,278
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
** Reclassified for comparative purposes.
FORM 10-Q
2
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 30, June 30,
1999 December 31, 1998
(Unaudited) 1998 (Unaudited)
--------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks.......................................... $ 20,561 $ 19,810 $ 23,253
Interest bearing deposits with banks............................. 97 5,150 85
Federal funds sold............................................... 8,738 20,372 8,300
Investment securities available for sale, at market (amortized
cost of $29,820, $50,824 and $36,043 as of June 30, 1999
December 31, 1998 and June 30, 1998, respectively)....... 29,501 50,976 36,124
Loans:
Consumer................................................. 68,973 68,078 73,668
Commercial............................................... 101,966 89,368 87,318
Real Estate.............................................. 143,332 123,739 118,055
--------- --------- ---------
Total loans...................................... 314,271 281,185 279,041
Less: Allowance for possible loan losses................. (4,243) (4,100) (4,064)
--------- --------- ---------
Net loans........................................ 310,028 277,085 274,977
---------- --------- -----------
Premises and equipment, net...................................... 12,293 12,209 12,012
Accrued interest receivable...................................... 2,318 2,069 2,076
Goodwill (net)................................................... 3,386 0 0
Other real estate owned.......................................... 312 271 0
Other assets..................................................... 5,325 3,898 2,932
--------- --------- ---------
Total assets..................................... $ 392,559 $ 391,840 $ 359,759
========= ========== =========
Liabilities
Deposits:
Demand, noninterest-bearing.............................. $ 92,705 $ 88,937 $ 87,272
Savings.................................................. 179,577 189,695 167,917
Time..................................................... 58,598 63,725 59,136
--------- --------- ---------
Total deposits................................... 330,880 342,357 314,325
--------- --------- ---------
Borrowed Funds................................................... 10,000 0 0
Other liabilities................................................ 7,035 7,262 4,904
--------- --------- ---------
Total liabilities................................ 347,915 349,619 319,229
--------- --------- ---------
Shareholders' equity
Common stock, par value $1; authorized 25,000,000
shares; issued 5,147,065, 5,067,078 and 5,049,278 shares
as of June 30, 1999, December 31, 1998 and June 30, 1998,
respectively and outstanding of 4,329,207, 4,303,818 and
4,325,818 shares as of June 30, 1999, December 31, 1998
and June 30, 1998, respectively ......................... 5,147 5,067 5,050
Paid-in capital in excess of par value .......................... 4,074 2,478 2,291
Unrealized investment (depreciation)
appreciation net of deferred income taxes................ (211) 100 54
Retained earnings................................................ 42,333 39,791 37,321
--------- --------- ---------
51,343 47,436 44,716
Less: Common stock in treasury at cost -- 817,858, 763,260 and
723,460 shares as of June 30, 1999, December 31, 1998
and June 30, 1998, respectively.......................... (6,699) (5,215) (4,186)
--------- --------- ---------
Total shareholders' equity............................... 44,644 42,221 40,530
--------- --------- ---------
Total liabilities and shareholders' equity............... $ 392,559 $ 391,840 359,759
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
FORM 10-Q
3
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------------
1999 1998*
---------- ----------
<S> <C> <C>
Operating activities:
Net Income.............................................................. $ 3,844 $ 3,374
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Provision for loan losses............................................ 125 50
Provision for depreciation and amortization.......................... 580 683
Provision for writedown of other real estate owned................... 0 25
Gain on sale of other real estate owned.............................. (6) (195)
Loans originated for resale.......................................... (47,960) (65,382)
Proceeds from loans sold............................................. 46,157 68,363
Gain on sale of loans................................................ (630) (759)
(Decrease) increase in deferred income taxes......................... (91) 83
Increase in interest receivable...................................... (249) (37)
(Decrease) Increase in interest payable............................... (189) 240
Other................................................................ (646) (2,280)
---------- ----------
Net cash provided by operating activities......................... 935 4,165
---------- ----------
Investing activities:
Purchases of investment securities...................................... (37,924) (5,943)
Proceeds from maturity and calls of fixed income securities............. 59,060 10,447
Loan (originations) repayments, net..................................... (13,443) 1,424
Loans purchased (dealer loans).......................................... (17,192) (14,189)
Purchases of premises and equipment..................................... (801) (835)
Proceeds from disposition of other real estate owned.................... 0 195
Capitalization of costs of other real estate owned...................... (41) 0
Cost of acquiring new subsidiaries...................................... (2,195) 0
---------- ----------
Net cash used by investing activities............................. (12,536) (8,901)
---------- ----------
Financing activities:
Net decrease in demand and savings deposits............................. (6,350) (11,738)
Net decrease in time deposits........................................... (5,127) (2,743)
Dividends paid.......................................................... (1,302) (999)
Repayment of mortgage debt.............................................. (14) (13)
Purchases of treasury stock............................................. (1,542) (1,488)
Proceeds from borrowed funds............................................ 10,000 0
Proceeds from issuance of common stock.................................. 0 173
---------- ----------
Net cash used by financing activities............................. (4,335) (16,808)
---------- ----------
Decrease in cash and cash equivalents................................... (15,936) (21,544)
Cash and cash equivalents at beginning of period........................ 45,332 53,182
---------- ----------
Cash and cash equivalents at end of period.............................. $ 29,396 $ 31,638
========== ==========
Supplemental cash flow information:
Income taxes paid.................................................... $ 1,300 $ 2,409
Interest paid........................................................ $ 2,869 $ 2,803
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
*-Reclassified for comparative purposes.
Form 10-Q
Page 4
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income........................................................... $2,002 $1,628 $3,844 $3,374
Other comprehensive income:
Unrealized holding (losses) gains on
available-for-sale securities.................................... (166) 5 (319) (12)
Deferred income tax (benefit) expense on
unrealized holding (losses) gains on
available for sale securities..................................... 56 (1) 108 4
------- ------- ------- -------
Comprehensive net income............................................. $1,892 $1,632 $3,633 $3,366
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Form 10-Q
Page 5
<PAGE>
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 AND 1998
(Unaudited)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of June 30, 1999 and 1998, the consolidated statements of cash
flows for the six month periods ended June 30, 1999 and 1998, the related
consolidated statements of income for the three and six month periods ended June
30, 1999 and 1998 and the related consolidated statements of comprehensive
income for the three and six month periods ended June 30, 1999 and 1998 are
unaudited.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of related revenue and expense during the
reporting period. Actual results could differ from those estimates. Management
believes that all adjustments, accruals and elimination entries necessary for
the fair presentation of the consolidated financial position and results of
operations for the interim periods presented have been made. All such
adjustments were of a normal recurring nature. The year-end balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The financial
statements should be read in conjunction with the Notes to Consolidated
Financial Statements contained in the Corporation's 1998 Annual Report
incorporated in the 1998 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #10, Stock Option Plan (the "Plan"), in the Notes
to Consolidated Financial Statements in the Corporation's 1998 Annual Report,
incorporated in the 1998 Form 10-K (Exhibit #13). Shares under option under the
Plan had a dilutive impact on net income per share for the three and six month
periods ended June 30, 1999 and 1998.
3. Disclosure of Accounting Policy:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, interest bearing deposits with banks and federal funds sold.
4. Adoption of Financial Accounting Standards:
In June 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") was issued. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. Comprehensive income includes net income
and several other items that current accounting standards require to be
recognized outside of net income, such as unrealized holding gains and losses on
available-for-sale investment securities in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Corporation adopted SFAS No. 130 on
Form 10-Q
Page 6
<PAGE>
January 1, 1998. When first applying SFAS No. 130, financial statements for
earlier periods that are provided for comparative purposes are required to be
restated to reflect application of the provisions of SFAS No. 130. SFAS No. 130
must be adopted at the beginning of an enterprises fiscal year.
In June 1997, Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") was issued. SFAS No. 131 replaces Statement of Financial Accounting
Standard No. 14, "Financial Reporting for Segments of a Business Enterprise".
SFAS No. 131 requires public business enterprises to report certain information
about their operating segments in a complete set of financial statements to
shareholders. Such financial information is required to be reported on the
basis that it is used internally by the enterprise's chief operating decision
maker in making decisions related to resource allocation and segment
performance. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Corporation adopted SFAS No. 131 on
January 1, 1998. Comparative year information is required to be restated in
accordance with SFAS No. 131, if practicable.
5. Loans:
Interest income on loans performing satisfactorily is recognized on the
accrual method of accounting. Nonperforming loans are loans on which scheduled
principal and/or interest is past due 90 days or more or loans less than 90 days
past due which are deemed to be problem loans by management. All nonperforming
loans, except consumer loans, are placed on nonaccrual status, and any
outstanding interest receivable at the time the loan is deemed nonperforming is
deducted from interest income. The charge-off policy for all loans, including
nonperforming and impaired loans, considers such factors as the type and size of
the loan, the quality of the collateral, and historical creditworthiness of the
borrower and management's assessment of the collectability of such loans.
As a part of its internal loan review process, management, when considering
classifying a loan as an impaired loan, considers a number of factors, such as a
borrower's financial strength, the value of related collateral and the ability
to continue to meet the original contractual terms of a loan. Major risk
classifications, used to aggregate loans include both credit and the risk of
failure to repay a loan and concentration risk. A loan is not considered
impaired if there is merely an insignificant delay or shortfall in the amounts
of payments. An insignificant delay or shortfall is a temporary delay in the
payment process of a loan. However, under these circumstances, the
Corporation's subsidiary, The Bryn Mawr Trust Company (the "Bank"), expects to
collect all amounts due, including interest accrued at the contractual interest
rate for the period of the delay.
When a borrower is deemed to be unable to meet the original terms of a
loan, the loan is considered impaired. While all impaired loans are not
necessarily considered non-performing loans, if a loan is delinquent for 90 days
or more, it is considered both a nonperforming and impaired loan.
When a loan is classified as impaired, it is put on a nonaccrual status and
any income subsequently collected is credited to the outstanding principal
balance. Therefore, no interest income was reported on outstanding loans while
considered impaired during either six month period ended June 30, 1999 or 1998.
Loans may be removed from impaired status and returned to accrual status when
all principal and interest amounts contractually due are reasonably assured of
repayment within an acceptable period of time and there is a sustained period of
repayment performance by the borrower, with a minimum repayment of at least six
months, in accordance with the contractual terms of
Form 10-Q
Page 7
<PAGE>
interest and principal. Previously unrecognized interest income is recorded as
interest income immediately. Future interest income is recorded based on the
existing terms of the loan. Based on the above criteria, $1,283,000 of loans
considered impaired were removed from the impaired loan status during the first
six months of 1999 and $395,000 of interest income was recognized as interest
income in the second quarter of 1999. No loans considered impaired were removed
from impaired loan status during 1998.
Smaller balance, homogeneous loans, exclusively consumer loans, when
included in nonperforming loans, for practical consideration, are not put on a
nonaccrual status nor is the current accrued interest receivable reversed from
income.
All of the Corporation's impaired loans, which amounted to $467,000,
$1,718,000 and $3,333,000 at June 30, 1999, December 31, 1998 and June 30, 1998,
respectively, were put on a nonaccrual status and any outstanding accrued
interest receivable on such loans at the time they were put on nonaccrual
status, was reversed from income.
Impaired loans are required to be measured based upon the present value of
expected future cash flows, discounted at the loan's initial effective interest
rate or at the loan's market price or fair value of the collateral, if the loan
is collateral dependent. As of June 30, 1999, December 31, 1998 and June 30,
1998, no impaired loans were measured using the present value of expected future
cash flows or the loan's market price because all impaired loans were collateral
dependent at these respective dates. Impaired loans measured by the value of
the loan's collateral amounted to $467,000, $1,718,000, and $3,333,000,
respectively.
If the loan valuation is less than the recorded value of the loan, an
impairment reserve must be established for the difference. The impairment
reserve is established by either an allocation of the reserve for loan losses or
by a provision for loan losses, depending on the adequacy of the reserve for
loan losses. All impairment reserves established in either 1999 or 1998 were
allocated from the existing reserve for loan losses. As of June 30, 1999,
December 31, 1998 and June 30, 1998, there were $353,000, $935,000 and
$3,216,000, respectively of impaired loans for which there is a related
allowance for loan losses. The total related allowance for loan loss at June
30, 1999, December 31, 1998 and June 30, 1998 was $78,000, $300,000 and
$350,000, respectively. Impaired loans for which no loan loss allowance was
allocated amounted to $114,000, $783,000 and $72,000 at June 30, 1999, December
31, 1998 and June 30, 1998, respectively. Average impaired loans as of June 30,
1999, December 31, 1998 and June 30, 1998 amounted to $1,533,000, 2,820,000 and
$3,153,000, respectively.
Form 10-Q
Page 8
<PAGE>
6. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
<TABLE>
<CAPTION>
six months ended year ended
June 30, December 31,
1999 1998 1998
------------------ ------
<S> <C> <C> <C>
Balance, Beginning of period $4,100 $4,074 $4,074
------ ------ ------
Charge-offs:
Consumer (94) (83) (179)
Commercial and industrial 0 (18) (64)
Real estate 0 (26) (0)
------ ------ ------
Total charge-offs (94) (127) (243)
Recoveries: ------ ------ ------
Consumer 25 3 19
Commercial and industrial 87 0 100
Real estate 0 64 0
------ ------ ------
Total recoveries 112 67 119
------ ------ ------
Net (charge-offs) / recoveries 18 (60) (124)
Provision for loan losses 125 50 150
------ ------ ------
Balance, End of period $4,243 $4,064 $4,100
====== ====== ======
</TABLE>
8. Acquisition of New Subsidiaries:
During the first quarter of 1999, the Corporation acquired CDC Capital
Management, Inc. ("CDC") and Joseph W. Roskos & Co. ("JWR & Co."). CDC is an
investment advisory firm, providing services to its client base regarding
alternative investment managers. JWR & Co. is a firm that provides family
office business services, including accounting, consulting, tax services and
fiduciary support for high-net-worth individuals. CDC was acquired for $281,000
in Corporation stock, to be paid out over a two year period. The purchase
method of accounting was used for this acquisition and the transaction added
$177,000 of goodwill to the Corporations books. JWR & Co. was acquired for
$4,195,000, of which $2,000,000 was paid in Corporation stock and $2,195,000 was
paid in cash. The purchase method of accounting was used for this acquisition
and the transaction added $3,300,000 in goodwill to the Corporation's books. As
a result of these acquisitions, goodwill of $3,477,000 was added to the
Corporations books. The amortization period for goodwill ranges from 10 years
to a maximum of 20 years. Goodwill expense for the first six months of 1999
amounted to $92,000.
Form 10-Q
Page 9
<PAGE>
7. 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 ("Trust") provides both corporate and individual
investment management and trust products and services. The Bank's Mortgage
Banking segment originates and sells residential mortgage loans to the secondary
mortgage market. Bryn Mawr Bank Corporation and all other subsidiaries are
aggregated under the "All Other" heading.
Segment information for the three months ended June 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
------------------------------------------------ ------------------------------------------------
1999 1998
Mortgage All Mortgage All
Banking Trust Banking Other Consolidated Banking Trust Banking Other Consolidated
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $11,149 - - - $11,149 $9,852 - - - $ 9,852
Less Loan loss provision 125 - - - 125 50 - - - 50
------------------------------------------------ ------------------------------------------------
Net interest income after
loan loss provision 11,024 - - - 11,024 9,802 - - - 9,802
Other income:
Fees for investment
management and trust
services - 5,040 - - 5,040 - 4,538 - - 4,538
Other income 1,367 - 995 2,185 4,547 1,345 - 1,086 368 2,799
------------------------------------------------ ------------------------------------------------
Total other income 1,367 5,040 995 2,185 9,587 1,345 4,538 1,086 368 7,337
Other expenses:
Salaries and benefits 5,176 1,934 334 1,179 8,623 4,826 1,806 175 390 7,197
Occupancy 1,470 246 74 88 1,878 1,300 195 23 (27) 1,491
Other operating expense 2,808 477 155 936 4,376 2,413 438 171 315 3,337
------------------------------------------------ ------------------------------------------------
Total other expense 9,454 2,657 563 2,203 14,877 8,539 2,439 369 678 12,025
------------------------------------------------ ------------------------------------------------
Segment profit (loss) 2,937 2,383 432 (18) 5,734 2,608 2,099 717 (310) 5,114
Intersegment (revenues)
expenses* (3) 118 - (115) 0 (3) 118 - (115) 0
------------------------------------------------ ------------------------------------------------
Segment profit after
eliminations $2,934 $2,501 $432 $ (133) $ 5,734 $2,605 $2,217 $ 717 ($425) $ 5,114
================================================ ================================================
% of segment profit (loss) 51% 44% 7% -2% 100% 51% 43% 14% -8% 100%
------------------------------------------------ ------------------------------------------------
</TABLE>
*-Intersegment revenues consist of rental payments to Bryn Mawr Bank Corporation
from its subsidiaries. Intersegment expenses consist of a $3,000 management
fee, paid by Bryn Mawr Bank Corporation to the Bank.
Form 10-Q
Page 10
<PAGE>
Item 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated results of operations of
Bryn Mawr Bank Corporation and its subsidiaries (the "Corporation") for the
three and six months ended June 30, 1999 and 1998, as well as the financial
condition of the Corporation as of June 30, 1999, December 31, 1998 and June 30,
1998. The Bryn Mawr Trust Company (the "Bank") The Bryn Mawr Trust Company
(Jersey), Ltd. ("Jersey") and Tax Counsellors of Bryn Mawr, Inc. ("TCBM") are
wholly-owned subsidiaries of the Corporation. Insurance Counsellors of Bryn
Mawr, Inc. ("ICBM") is a wholly-owned subsidiary of the Bank. In December of
1998, the Corporation formed a wholly-owned subsidiary, Bryn Mawr Brokerage
Company, Inc. ("BM Brokerage") to offer securities products to its customers
through the Bank's branch system. The Corporation acquired two new subsidiaries
during the first quarter of 1999, CDC Capital Management, Inc. ("CDC") and
Joseph W. Roskos & Co. ("JWR & Co."). CDC is an investment advisory firm,
providing services to its client base regarding alternative investment managers.
JWR & Co. is a firm that provides family office business services, including
accounting, consulting, tax services and fiduciary support for high-net-worth
individuals.
RESULTS OF OPERATIONS
- ---------------------
The Corporation reported net income of $3,844,000 for the six months ended
June 30, 1999, a 14% increase over $3,374,000 reported for the same period in
1998. Non-recurring income, resulting either from recoveries or interest income
from prior problem loans, was included in net income for the first six months of
both 1998 and 1999. Exclusive of this non-recurring income, net income
increased 13% for the first six months of 1999, compared to the same period in
1998. Earnings per common share amounted to $0.88, a 13% increase over $0.78
reported for the first six months of 1998. Earnings per common share, assuming
dilution were $0.84 and $0.74, respectively.
For the second quarter of 1999, the Corporation reported net income of
$2,002,000, a 23% increase over $1,628,000, reported for the second quarter of
1998. For the three months ended June 30, 1999 and 1998, earnings per common
share amounted to $.46 and $.38, respectively. Partially contributing to the
23% increase in net income for the quarter was the recording of $395,000 in
interest income from a loan that was categorized as impaired since the second
quarter of 1997 (the "Additional Interest Income"). While the loan was never
delinquent, the Bank determined that a significant reduction in the borrower's
income necessitated that the loan be classified as impaired, as defined in
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan", as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". During the period of impairment, all scheduled
payments of principal and interest were made on a timely basis, however, under
generally accepted accounting principals, the Additional Interest Income was not
recorded as income on the Bank's books. This was consistent with the Bank's
long-standing policy concerning impaired loans. By year-end 1998, the borrower
demonstrated the ability to satisfactorily meet the terms of the loan
Form 10-Q
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and, after a six month period of sustained payment performance, in June 1999,
the loan was removed from the impaired status and the interest previously
collected was recorded as interest income.
The increase in earnings, for the first six months of 1999 over the same
period in 1998 may be attributed to a number of factors, including an increase
in net interest income, up 13% over the first six months of 1998 and an increase
of 31% in other income, primarily due to growth in new revenue streams provided
by the acquisition or start-up of the new subsidiaries referred to previously.
Total other expenses rose 24% for the first six months of 1999 compared to the
same period in 1998.
Average outstanding earning assets grew by 8%. Average outstanding loan
balances for the first six months of 1999 grew 9% from average daily outstanding
loan balances for the first six months of 1998, while average outstanding
investment security balances decreased by 1%. The increase in average
outstanding earning assets was funded by a 9% increase in average daily
outstanding deposit balances. The majority of the growth in average daily
outstanding deposits occurred in transaction based accounts. Average daily
outstanding balances of non-interest bearing demand deposit accounts and NOW
accounts were up 13% and 14%, respectively.
Since, in the short term, 30 days or less, the Bank is asset rate sensitive,
a decreasing prime rate usually will cause a related decrease in the respective
yields on earning assets. The overall annualized yield on earning assets
decreased by 10 basis points, from 7.9% at June 30, 1998 to 7.8% for the same
period in 1999.
With the majority of the growth in average outstanding deposits occurring
in no cost or low costing deposits during the first six months of 1999, the
average cost of funds decreased from 1.97% for the first six months of 1998 to
1.59% for the same period in 1999. The result was an increase in the Bank's
annualized net interest margin, to 6.22% for the first six months of 1999
compared to 5.99% for the same period in 1998. While interest rate movements
and their effect on future revenue streams cannot be predicted, management
believes that there are presently no known trends, events or uncertainties that
will have or are reasonably likely to have a material effect on the
Corporation's liquidity, capital resources or results of operations in the
future.
NET INTEREST INCOME
- -------------------
For the six months ended June 30, 1999, net interest income rose 13% to
$11,149,000 from $9,852,000 in 1998. Total interest income grew 7% for the
first six months of 1999, to $13,829,000 from $12,894,000 for the first six
months of 1998. Interest expense decreased 12% for the six months ended June
30, 1999, to $2,680,000 compared to $3,042,000 for the first six months of 1998.
The yield on earning assets for the first six months of 1999 was 7.8% compared
to 7.9% for the first six months of 1998 while the effective rate paid on
interest bearing deposits for the first six months of 1999 and 1998 was 2.2% and
2.6%, respectively.
Interest and fees on loans increased 9% from $11,310,000 for the first six
months of 1998 to $12,334,000 for the first six months of 1999. Exclusive
Form 10-Q
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<PAGE>
of the Additional Interest Income, interest and fees on loans grew by 6%. A 9%
increase in average outstanding loan balances for the first six months of 1999,
to $293,383,000, compared to $268,353,000 for the same period in 1998 is the
primary reason for this increase in loan related interest and fee income.
Interest income on investments decreased $80,000 or 7%, from $1,156,000 for
the first six months of 1998 to $1,076,000 for the first six months of 1999.
Interest from U.S. Treasury obligations decreased 58% from $372,000 for the
first six months of 1998 to $157,000 for the first six months of 1999. The
primary reason for this decrease was a $7,270,000 or 56% decrease in the average
balance of U.S. Treasury securities, from $12,906,000 during the first six
months of 1998 to $5,635,000 for the comparable period in 1999. The decrease in
U.S. Treasury obligations was a result of maturities, not sales of U.S. Treasury
obligations. Interest income on U.S. Government Agency securities increased 23%
from $630,000 for the six months ended June 30, 1998 to $776,000 at June 30,
1999. A 38% increase in the average balance of U.S. Government Agency
securities, from $20,589,000 for the six months ended June 30, 1998 to
$28,476,000 for the same period in 1999, is primarily responsible for the
related 23% increase in interest income. Interest income on obligations of
states and political subdivisions decreased 8% or $9,000, from $111,000 for the
six months ended June 30, 1998 to $102,000 for the same period in 1999. Average
outstanding balances of obligations of state and political subdivision decreased
by 4%, from $4,820,000 in 1998 to $4,643,000 in 1999. The overall yield on
investment securities decreased from 5.8% for the first six months of 1998 to
5.4% for the first six months of 1999, a result of lower rates of interest being
paid on investments purchased during the prior twelve month period.
Interest on federal funds sold decreased 11% from $388,000 the first six
months of 1998, compared to $345,000 for the same period in 1999. Average
outstanding balances of federal funds sold remained level for each period,
however, the yield on federal funds sold decreased to 4.8% for the first half of
1999, compared to 5.4% for the same period last year. This decrease in the
yield on federal funds sold is the reason for the 11% decline in interest income
on federal funds sold from period to period.
Interest expense on deposits decreased 12% or $362,000, to $2,680,000 for
the six months ended June 30, 1999 compared to $3,042,000 for the same period in
1998. The average cost of interest bearing deposits decreased 40 basis points,
from 2.6% at June 30, 1998 to 2.2% for the six months ended June 30, 1999. The
average interest bearing deposit balances increased 8% to $247,551,000 at June
30, 1999 compared to $229,045,000 for the same period in 1998. Average non-
transaction savings accounts remained level for the first six months of 1999,
compared to the same period in 1998, while average Market Rate Accounts
increased 14% and CDs decreased by 12%. The Bank's average transaction based
NOW account and non-interest bearing demand deposit account balances increased
14% and 13%, respectively. The annualized cost of CDs decreased 40 basis
points, from 5.0% for the first six months of 1998 to 4.6% for the same period
in 1999. The average cost of Market Rate Accounts and savings accounts both
decreased by 50 basis points, while the cost of NOW accounts decreased by 30
basis points. The average cost of deposits, including non-interest bearing
demand deposits decreased from 1.97% for 1998, to 1.59% for the first quarter of
1999.
For the first six months of 1999, the net interest margin increased to
Form 10-Q
Page 13
<PAGE>
6.22% from 5.99% for same period in 1998. The net interest margin is computed
exclusive of related loan fee income.
For the second quarter of 1999, net interest income of $5,861,000 was 18%
ahead of $4,980,000, reported for the second quarter of 1998. Total interest
income increased $703,000 or 11% from $6,494,000 for the second quarter of 1998
to $7,197,000 for the same period in 1999. Interest and fees on loans increased
$849,000 or 15% for the second quarter of 1999 over the second quarter of 1998.
Exclusive of the Additional Interest Income, interest and fees on loans would
have increased by 8% over the second quarter of 1998. Interest on federal funds
sold decreased $56,000 or 33%. Interest income on U.S. Government Agency
Obligations increased $30,000 or 10%, due to an increase in average daily
outstanding balances in this investment type. Interest income on U.S. Treasury
Securities decreased by $128,000 or 70%, due primarily to a decrease in
corresponding average balances. Interest income on obligations of states and
political subdivisions decreased by $9,000 or 15%. Interest on deposits
decreased $178,000 or 12%, due primarily to the change in the mix of average
outstanding deposit balances, decreasing higher yielding average daily
outstanding CD balances and increasing lower yielding transaction based NOW and
non-interest bearing demand deposit accounts.
LOAN LOSS PROVISION
- -------------------
The loan loss provision represents management's determination of the amount
necessary to be charged against the current year's income in order to maintain
an adequate loan loss reserve. The methodology necessary to arrive at an
appropriate allowance for loan loss involves a high degree of management
judgement and results in a range of estimated losses. It is the goal of this
loan loss reserve adequacy process to provide a loan loss reserve sufficient to
address the Bank's potential risk of loan losses during various economic cycles.
The balance in the allowance for loan losses reflects management's best estimate
of probable loan losses related to specifically identified loans as well as
probable incurred loan losses remaining in the existing loan portfolio. As a
part of the determination of management's best estimate of the level of the loan
loss reserve, management considers such available information as loan
concentrations, past charge off history, collateralization of loans and the
underlying value of collateral and any current economic trends that might have
an effect on the loan portfolio. The credit quality of a loan may be affected
by the failure of a borrower's operating systems, as a consequence of a Year
2000 ("Y2K") issue. As a part of the consideration of the adequacy of the loan
loss reserve, management also considers any potential Y2K losses, as they relate
to the existing loan portfolio.
The Bank maintains an Officer Loan Review Committee (the "Committee") and
retains the services of an independent loan review consultant (the
"Consultant"). The Consultant performs an independent review of the Bank's loan
portfolio and the loan loss reserve. The Committee meets monthly to review the
adequacy of the loan loss reserve as well as all nonaccrual loans, any potential
problem loans and loans criticized by either the Bank's regulators or the
Consultant.
A range of the required level of allowance for loan losses is calculated on
a monthly basis. First, based on ratings assigned by the Committee on the
quality of the loans which are reviewed, a specific reserve may be computed
Form 10-Q
Page 14
<PAGE>
for each loan. Secondly, in addition to the specific reserve amounts, the
balance of loans not reviewed by the Committee has a reserve computed based on
two historical trends, which take into consideration the effect of recent
business cycles on the Bank's existing loan portfolio. For the lowest range of
allowable reserve, the average of the prior five years write-offs plus the
annualized write-offs for the current year, presenting the strong economic cycle
for the Bank, is applied to this group of loans. Including annualized write-
offs for the current year takes into consideration current trends in both
volumes and write-offs, to be included in the computation. For the highest
range of allowable reserve, the average write-offs of the years 1990 through
1993, representing a weak economic cycle for the Bank, is applied to this group
of loans. Management recognizes that the overall allowance should reflect a
margin for the imprecision inherent in most estimates of expected credit losses,
as they relate to the existing loan portfolio. To that end, an amount equal to
.5% of all outstanding loans is included in the loan loss reserve calculation to
address possible unforeseen loan loss reserve requirements inherent in the
existing loan portfolio. Each of the two methodologies, reflecting the
potential effect of both strong and weak economic cycles on both the Bank's
existing loan portfolio and the present level of the loan loss reserve are
utilized to determine the potential range of reserves and these ranges are
compared to the Bank's current loan loss reserve balance. Any adjustments to
the level of the allowance for loan loss reserve are made as necessary. As of
June 30, 1999, the current allowance for loan losses falls within the range of
allowable loan loss reserve balances, as determined by the methodology described
previously in this paragraph.
For the six months ended June 30, 1999, the loan loss provision was
increased to $125,000, compared to $50,000 for the same period in 1998. The
loan loss reserve amounted to 1.40% of outstanding loans at June 30, 1999, down
from 1.5% as of June 30, 1998. Delinquencies, as a percentage of outstanding
loans, were 44 basis points as of June 30, 1999. Nonperforming loans increased
6% to $523,000 as of June 30, 1999, up from $493,000 as of December 31, 1998 and
decreased 48% from $1,014,000 in nonperforming loans as of June 30, 1998.
Based on the results of both the internal and external loan review processes,
management believes the loan loss reserve to be adequate as of June 30, 1999.
OTHER INCOME
- ------------
Total other income of $9,587,000 for the six months ended June 30, 1999
increased 31% over $7,337,000 reported for the same period in 1998. Included in
each period were net gains on the sale of OREO. Exclusive of these gains, total
other income increased by 2,712,000 or 34% over 1998 levels. Of this increase,
$1,794,000 was earned by the non-banking subsidiaries, many of which were not in
operation during 1998. The Bank's other income increased by 918,000 or 14%.
Fees for trust services rose 11% from $4,538,000 for the first six months
of 1998 to $5,040,000 for the same period in 1999, due primarily to both the
acquisition of new Trust accounts and an increase in the market value of Trust
assets under management, up by 29%, to $2,561,061,000 at June 30, 1999 from
$1,992,774,000 as of June 30, 1998.
Rising rates of interest on residential mortgage loans, during the first
half of 1999, compared to the same period in 1998 was primarily responsible
Form 10-Q
Page 15
<PAGE>
for a decrease in refinance activity in residential mortgage loans. For the six
month period ended June 30, 1999, the Bank originated and sold $45,762,000 of
residential mortgage loans in the secondary mortgage market, a 33% decrease from
$68,008,000 of residential mortgage loans originated and sold during the first
six months of 1998. A combination of deferred loan fees and documentation
preparation fees, earned as income resulting from the sale of residential
mortgage loans in the secondary mortgage market and related gains on the same
respective sales of residential mortgage loans in the secondary mortgage market
amounted to $630,000 or 138 basis points for the first six months of 1999
compared to $759,000 or 113 basis points for the same period in 1998.
Income from other service charges, commissions and fees amounted to
$486,000 for the first six months of 1999, an 8% increase from $451,000 reported
for the first quarter of 1998. There was a $6,000 recovery related to prior
OREO sales reported for the first half of 1999, compared to gains on the
disposition of OREO of $195,000 for the same period in 1998.
Other operating income increased by $2,018,000 or 244% to $2,844,000 for
the first six months of 1999, compared to $826,000 for the same period in 1998.
Of this $2,018,000 increase, increased fee income of $1,132,000 was reported
from subsidiaries of the Corporation, other than the Bank, three of which, CDC,
JWR & Co. and BM Brokerage, were not in operation during 1998. Non-banking
subsidiaries earned $374,000 in other income for the first six months of 1998,
compared to $2,225,000 for the same period in 1999.
Total other income increased $1,015,000 or 26% from $3,912,000 for the
second quarter of 1998 to $4,927,000 for the second quarter of 1999. Trust fees
increased 11% or $262,000, from $2,360,000 for the second quarter of 1998 to
$2,622,000 for the same period in 1999. Net gains on the sale of loans,
directly related to the decreased volume of residential loan sales in the
secondary market, were down 29%. Net gains on sale of loans decreased by
$114,000 to $280,000 for the second quarter of 1999 from $394,000 for the second
quarter of 1998. Other service charges, commissions and fees decreased by
$59,000 to $173,000 for the second quarter of 1999 from $232,000 for the second
quarter of 1998. Other operating income increased by $1,025,000 or 199%, from
$516,000 for the second quarter of 1998 to $1,541,000 for the second quarter
1999. The non-banking subsidiaries accounted for $848,000 of this $1,025,000
increase.
OTHER EXPENSES
- --------------
Total other expense increased $2,852,000 or 24% for the first six months of
1999 to $14,877,000 from $12,025,000 for the first six months of 1998. Exclusive
of a non-recurring recovery of a legal fee, recovered during the first quarter
of 1998, total other expense increased $2,718,000 or 22%. Of this increase
$1,563,000 related to expenses incurred by the non-banking subsidiaries and the
Corporation and the balance related to a 12% increase in the Bank's total other
expense. Each other expense category, discussed below, reflects the effect of
increased expenses related to these non-banking subsidiaries.
Salaries and wages grew $1,199,000 or 20%, from $6,132,000 for the six
months ended June 30, 1998 to $7,331,000 for the same period in 1999. Of this
Form 10-Q
Page 16
<PAGE>
increase, $1,332,000 relates to regular salary expense, representing a 28%
increase in regular, part time and overtime salaries during the first six months
of 1999, compared to 1998. Included in 1999's regular salary expense increase
were increased salaries for the non-banking subsidiaries of $663,000 over 1998's
regular salary expense. The Bank's regular salary expense increased 15% in the
first half of 1999, compared to the same quarter in 1998. Staffing additions,
occurring during the previous twelve month period were primarily responsible for
this increase. Incentive salaries, tied to overall corporate profitability,
decreased $134,000 or 10%, from $1,281,000 for the six months ended June 30,
1998 to $1,147,000 for the same period in 1999.
Employee benefits expenses increased $227,000 or 21% from $1,065,000 for
the first six months of 1998 to $1,292,000 for the same period in 1999. The
Bank's employee benefits expense increased $125,000 or 12%, comparable to the
overall growth in regular salary expense. The remainder of the increase was due
to fringe benefits expenses associated with the non-banking subsidiaries.
Occupancy expense increased $245,000 or 37%, from $665,000 for the first
six months of 1998 to $910,000 for the first six months of 1999. The majority
of this increase, $163,000, occurred in the Bank. Bank occupancy expense
increased by 23%. Included in this increase was the cost of maintaining
buildings, located at #2 and #6 Bryn Mawr Avenue (the "Buildings"). The
Buildings are located directly across Lancaster Avenue from the Bank's main
office and were leased during the first quarter of 1999 by the Bank, to be used
for future Corporation expansion. Expenses directly related to the Buildings
amounted to $110,000 for the first six months of 1999 and represent the majority
of the $163,000 increase in occupancy expenses for the Bank from period to
period. Rental income from existing tenants in the Buildings generated $101,000
in rental income, included in other income, during the first six months of 1999,
offsetting all but $9,000 of this additional occupancy expense.
Furniture, fixtures and equipment expense increased $142,000 or 17% from
$826,000 for the first half of 1998 to $968,000 for the same period in 1999.
The Bank's furniture, fixtures and equipment expense increased by $110,000 or
13%. The largest increases occurred in depreciation, up $72,000, small
equipment and software expense, up $17,000 and the cost of maintenance
agreements, which increased by $13,000.
Other operating expenses increased $1,039,000 or 31%, from $3,337,000 for
the first six months of 1998 to $4,376,000 for the first six months of 1999.
Included in other operating expense for 1998 was a non-recurring recovery,
related to a prior disputed loan. Exclusive of this non-recurring recovery,
other operating expense increased by $900,000. Of this $900,000 increase,
$595,000 related to the non-banking subsidiaries and the Corporation, while the
Bank's expense increased by $444,000 or 15%. Exclusive of the non-recurring
recovery referred to previously, other operating expense for the Bank increased
by $310,000 or 11%.
For the quarter, total other expenses increased 23% or $1,465,000 to
$7,834,000 for the quarter ended June 30, 1999 from $6,369,000 from the same
quarter in 1998. The largest increase occurred in salaries and wages, up
$683,000 or 21%. Of this increase, regular salaries, full time, part time and
overtime increased by $628,000 or 25%. Included in this increase were the
salaries for the non-banking subsidiaries, most of which were not in operation
Form 10-Q
Page 17
<PAGE>
during 1998. The increase in these salaries amounted to $333,000. Exclusive of
these salary costs, the Bank's regular salary cost increased by $295,000 or 12%
for the second quarter of 1999, compared to the second quarter of 1998.
Salaries - other increased by $55,000 or 7% for the quarter. Employee benefits
costs rose by 22% or $115,000 reflecting both the effect of increased staff in
the Bank, as well as staffing additions for the new non-banking subsidiaries.
Occupancy and bank premises expense increased by $159,000 or 46%. The majority
of this increase was due to costs associated with the Buildings, which added
$88,000 to occupancy expense for the second quarter of 1999. Other operating
expenses increased by $476,000 or 26%, from $1,848,000 for the second quarter of
1998 to $2,324,000 for the second quarter of 1999. Advertising costs were up
$57,000 from the second quarter of 1998 to the second quarter of 1999. Other
operating expenses of the Corporation increased $411,000 or 27%. Of this
increase $281,000 occurred in non-banking subsidiaries while the Bank's other
operating expenses increased by $130,000 or 10% over the same period in 1998.
APPLICABLE INCOME TAXES
- -----------------------
The Corporation's effective tax rate, defined as income tax expense divided
by pre-tax income, for the first six months of 1999 and 1998 was 33% and 34%,
respectively.
FINANCIAL CONDITION
- -------------------
Total assets increased less than 1% from $391,840,000 at December 31, 1998
to $392,559,000 as of June 30, 1999. Total assets grew 9% from $359,759,000 as
of June 30, 1998.
Outstanding earning assets decreased 1% to $352,607,000 as of June 30, 1999
from $391,840,000 as of December 31, 1998. The Bank's loan portfolio increased
12%, to $314,271,000 at June 30, 1999 from $281,185,000 as of December 31, 1998.
Outstanding loans increased by 13%, from $279,041,000 as of June 30, 1998.
Outstanding consumer loans of $68,973,000 at June 30, 1999 increased 1% from
consumer loan outstanding balances of $68,078,000 as of December 31, 1998 and
decreased 6% from $73,668,000 as of June 30, 1998. Competition from automobile
manufacturers for automobile loans and borrowers' ability to refinance existing
fixed rate home equity loans with lower rate residential mortgage loans were the
primary reasons for the decrease in consumer loan balances from June 30, 1998.
However, an increase in home equity loan activity during the first six months of
1999 is the primary reason for the increase in consumer loan balances during the
first half of 1999. Outstanding commercial loans at June 30, 1999 were
$101,966,000, a 14% increase from outstanding commercial loan balances of
$89,368,000 at December 31, 1998 and 17% ahead of $87,318,000 at June 30, 1998.
Outstanding real estate loans were $143,332,000 at June 30, 1999, a 16% increase
from $123,739,000 in outstanding real estate loans at December 31, 1998 and a
21% increase over $118,055,000 in outstanding real estate loans as of June 30,
1998. The primary reason for the increase in outstanding real estate loans from
December 31, 1998 to June 30, 1999 was an increase in commercial mortgage
lending activity.
The Bank's investment portfolio, having a market value of $29,501,000 at
June 30, 1999, decreased 42% from a market value of $50,976,000 at December 31,
1998 and decreased 18% from $36,124,000 as of June 30, 1998. The decrease
Form 10-Q
Page 18
<PAGE>
in the investment portfolio was used to partially fund growth in the loan
portfolio.
The Corporation has chosen to include all of its investment securities in
the available for sale category. Investments in this category are reported at
the current market value with net unrealized gains or losses, net of the
deferred tax effect, being added or deducted from the Corporation's total equity
on the balance sheet. As of June 30, 1999, the investment portfolio had an
unrealized loss of $319,000, compared to an unrealized gain of $152,000 as of
December 31, 1998. The unrealized investment depreciation, net of deferred
income tax benefit, decreased the Corporation's shareholders' equity on the
balance sheet by $211,000 as of June 30, 1999.
Federal funds sold amounted to $8,738,000 as of June 30, 1999, a 57%
decrease from $20,372,000 as of December 31, 1998 and a 5% increase over
$8,300,000 as of June 30, 1998. A large increase in deposits at year-end 1998
provided for a similar increase in federal funds sold. In an effort to mitigate
potential concentration risk in the sale of federal funds sold, the Bank
invested excess funds into its interest bearing account at the Federal Home Loan
Bank of Pittsburgh (the "FHLB"). As deposits decreased during the first half of
1999, the balance of the FHLB account was also decreased. This is the reason
for a $5,053,000 decrease in interest bearing deposits with banks from December
31, 1998 to June 30, 1999. The decrease in outstanding federal funds sold from
December 31, 1998 was primarily due to both an increase in outstanding loans and
a decrease in deposits during the first half of 1999. Management continues to
monitor the liquidity requirements of the Bank and believes that it has the
ability to increase its liquidity position through growth of new CDs, borrowing
from the FHLB and the sale of investments, classified as available for sale.
Nonperforming assets amounted to $835,000 at June 30, 1999, a 9% increase
from $764,000 at December 31, 1998 and a 18% decrease from nonperforming assets
of $1,014,000 at June 30, 1998. Nonperforming loans increased 6% to $523,000 at
June 30, 1999 compared to nonperforming loans of $493,000 at December 31, 1998
and decreased 45% from $1,014,000 as of June 30, 1998. OREO balances amounted
to $312,000 as of June 30, 1999, a 15% increase over $271,000 as of December 31,
1998. There was no OREO recorded on the Corporation's books as of June 30,
1998. Six OREO properties, all related to a single borrower, remain on the
Bank's books as of June 30, 1999.
As of June 30, 1999 and 1998, there were no significant loans classified
for regulatory purposes as loss, doubtful, substandard or special mention that
either (i) represent or result from trends or uncertainties which management
reasonably expects will impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which management is aware of
any information, causing management to have serious doubts as to the borrower's
ability to comply with the loan repayment terms.
Total deposits decreased 3% to $330,880,000 as of June 30, 1999 from
$342,357,000 as of December 31, 1998. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total average
outstanding deposit balances increased 9% to $340,550,000 for the six month
period ended June 30, 1999 from $311,697,000 for the same period in 1998.
Average savings balances remained relatively level at $40,313,000 for the first
six months of 1999, compared to $40,362,000 for the same period in
Form 10-Q
Page 19
<PAGE>
1998. With the exception of CD average outstanding balances, all other deposit
categories had growth in average outstanding balances. Average Outstanding
Market Rate Account balances increased 14% or $6,151,000 from $44,924,000 in
average daily outstanding balances for the six months ended June 30, 1998 to
$51,075,000 for the same period in 1999. Average outstanding NOW account
balances grew 14% or $11,277,000, from $82,616,000 for the first six months of
1998 to $93,893,000 for the same period in 1999. Non-interest bearing demand
deposit average outstanding balances grew 13% or $10,347,000 from $82,652,000
for the six months ended June 30, 1998 to $92,999,000 for the same period in
1999. Average outstanding CD balances decreased 1% or $721,000 from $61,192,000
in average outstanding balances for the first six months of 1998 to $60,471,000
for the same period in 1999. Acquisition of new deposits from recent banking
mergers and consolidations and new lending relationships, bringing new deposit
relationships are the primary reasons for the growth in average deposits from
the first six months of 1998 compared to the first six months of 1999.
LIQUIDITY, INTEREST RATE SENSITIVITY
- ------------------------------------
The Bank's liquidity is maintained by managing its core deposits,
purchasing federal funds, selling loans in the secondary market, and borrowing
from the FHLB. The Bank's liquid assets include cash and cash equivalents as
well as certain unpledged investment securities. Bank management has developed
a revised liquidity measure, incorporating its ability to borrow from the FHLB
to meet liquidity needs and goals. Periodically, the Asset / Liability
Committee of the Bank reviews the Bank's liquidity needs and reports its
findings to the Risk Management Committee of the Bank's Board of Directors.
In the short term, 30 days or less, the Bank is asset rate sensitive after
adjusting the interest rate sensitivity of savings deposits based on
management's experience and assumptions regarding the impact of product pricing,
interest rate spread relationships and customer behavior. Asset rate
sensitivity will result in a greater portion of assets compared to deposits
repricing with changes in interest rates within specified time periods. The
opposite effect results from being liability rate sensitive. Asset rate
sensitivity in the short term, in an increasing rate environment should produce
an increase in net interest income. The Bank uses simulation models to help
measure its interest rate risk and to help manage its interest rate sensitivity.
The simulation models consider not only the impact of changes in interest rates
on forecasted net interest income, but also such factors as yield curve
relationships, possible loan prepayments, and deposit withdrawals. As of June
30, 1999, based on the results from the simulation models, the amount of the
Bank's interest rate risk was within the acceptable range as established by the
Bank's Asset/Liability Policy.
CAPITAL RESOURCES
- -----------------
Total consolidated shareholders equity of the Corporation was $44,644,000,
or 11.4% of total assets, as of June 30, 1999, compared to total shareholders
equity of $42,221,000, or 10.8% of total assets, as of December 31, 1998. As of
June 30, 1998, shareholders' equity was $40,530,000, or 11.3% of total assets.
The Corporation's risk weighted Tier I capital ratio was 11.99% as of June 30,
1999 compared to 13.55% both at December 31, 1998 and June 30, 1998,
respectively. The respective Tier II ratios were 13.24%,
Form 10-Q
Page 20
<PAGE>
14.80% and 14.80%, respectively. During the first half of 1999, the Corporation
declared its regular dividend of $0.30 per share, a 30% increase over $0.23 per
share declared during the first half of 1998.
In March 1999, the Corporation elected to continue a stock repurchase
program, originally established in March of 1997, with a goal of repurchasing up
to 5% of the outstanding stock of the Corporation, as of March 1, 1999. As of
June 30, 1999, the Corporation repurchased 219,800 shares of its stock at a cost
of $5,289,000.
YEAR 2000
- ---------
The Corporation began its process of assuring that all its software and
computer systems or any equipment with computer chips (collectively the
"Systems") and applications are Y2K compliant in November 1996. In 1997, a
comprehensive project plan (the "Plan") to address the Y2K problems and issues,
related to the Bank's and its affiliated operations, was developed and
implemented. The Bank, as the primary operating subsidiary of the Corporation
is addressing the Y2K problem and related issues for the Corporation and all of
its subsidiaries. The Plan includes five phases. They are as follows:
Awareness, Assessment, Renovation, Validation and Implementation, as defined by
the Federal Financial Institutions Examination Council and the banking
regulatory agencies which regulate the Corporation and it affiliates.
A project team, consisting of key members of the Bank's technology staff,
representatives of functional business units and senior management (the "Team")
was created. Additionally, the duties of the Senior Vice President and Chief
Technology Officer were realigned to serve primarily as the Y2K project manager.
The assessment of the impact of the Y2K issues on the Bank's Systems has been
completed. Based on the assessment, the Bank has identified and prioritized
those Systems deemed to be mission critical or those that have significant
impact on normal operations.
The Bank relies on third party vendors and service providers (the "Groups")
for its data processing capabilities and to maintain its computer systems.
Formal communications with those Groups were initiated in 1997 and continued
through 1998 and into 1999. Thus far responses indicate that most of the
significant providers in the Group currently have compliant versions available
or are well into the renovations and testing phases. Based on current
information related to the Group, management has determined that the Y2K issues
will not pose significant operational problems for the systems. However, the
Bank can give no guarantee that the systems of the Group on which the Bank's
systems rely will be timely renovated and Y2K compliant.
Additionally, the Bank has designed and completed implementation of a plan
to identify the potential risks posed by the impact of Y2K issues on both its
significant deposit customers and borrowing customers. Formal communications
have been initiated and findings are presented to the Board of Directors at each
quarterly Board of Directors' meeting. On those months that the Board of
Directors does not meet, an update of the Y2K initiative is presented to the
Board's Risk Management Committee.
In the fourth quarter of 1998, the Bank formed a Y2K Communications
Committee, consisting of Bank marketing officers and members of the Y2K Team.
This Committee is charged with educating and informing the Corporation's
Form 10-Q
Page 21
<PAGE>
employees, customers and community about the Y2K readiness of the Bank.
Bankwide employee training took place in the first quarter of 1999, as well as
several customer awareness initiatives were presented.
The Team estimates that the Bank's Y2K readiness is 99% complete and that
the activities involved in assessing external risks and operational issues are
100% complete.
The Bank has used and expects to continue to use internal resources to
implement its readiness plan and to upgrade or replace the Systems effected by
the Y2K issue. The total cost to the Bank of the Y2K compliance activities has
not and is not anticipated to be material to the financial position or results
of operations in any given year. The Bank anticipates funding the cost of
becoming Y2K compliant out if its current earnings streams.
The Bank is evaluating the adequacy of its loan loss reserve, as it relates
to potential risk posed by the lack of Y2K readiness of its significant
borrowing customers. Bank management 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 cost analysis of the costs incurred to date in conjunction with
Y2K is being maintained in the Bank's information services area. Based on a
review of this analysis, it was determined that the following are the most
significant Y2K cumulative expenditures to date, along with a projection of
potential expenditures, necessary to complete the Y2K compliance requirements.
<TABLE>
<S> <C>
New Hardware / Software replacement $270,000
AS/400 for Y2K testing 33,000
Modifications to existing systems 29,000
Other Y2K costs to date 222,000
--------
Total expended to date 554,000
Anticipated additional costs 50,000
--------
Total projected Y2K costs 594,000
</TABLE>
The costs and the timetable in which the Bank plans to complete the Y2K
readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. The Bank can make no guarantee that these estimates will be achieved,
and actual results could differ from such plans.
Bank management believes, based on information and testing results obtained
from 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.
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.
Realizing that some disruption may occur despite our best efforts,
Form 10-Q
Page 22
<PAGE>
because of the Y2K issue, the Bank has substantially updated its contingency
plans for each critical system, in the event one of those systems fails. The
Bank's mission critical vendors have developed contingency plans to provide
resources during the weekend of December 31, 1999 and for a period of time
afterward to help their clients overcome any unforeseen problems, associated
with the millennium change. The Bank's mission critical vendors anticipate the
ability to resolve any potential Y2K related problem in a timely manner. The
contingency plan was completed and approved by the Risk Management Committee of
the Board of Directors in June 1999.
Form 10-Q
Page 23
<PAGE>
PART II. OTHER INFORMATION
--------------------------
June 30, 1999
Item 1. Legal Proceedings
- --------
None
Item 2. Changes in Securities
- --------
None
Item 3. Defaults Upon Senior Securities
- --------
None
Item 4. Submission of Matters to Vote of Security
- -------- Holders
None
Item 5. Other Information
- --------
None
Item 6. Exhibits and Reports on Form 8-K
- --------
The Corporation filed a report on Form 8-K on
March 3, 1999, reporting the continuation of
its stock repurchase program for another year,
through March 31, 2000. The program authorized
Corporation management to spend up to $6,500,000
to repurchase up to 5% of the
Form 10-Q
Page 24
<PAGE>
outstanding shares of the Corporation as of
March 1, 1999.
The Corporation filed a report on Form 8-K on
March 8, 1999, reporting the resignation of
Peter H. Havens as Executive Vice President
of the Bank and his resignation as director
of both the Bank and Corporation. Mr. Havens'
resignation was for personal reasons.
The Corporation filed a report on Form 8-K on
May 28, 1999, reporting the resignation of
Richard I. Sichel as executive Vice President
of the Bank. Mr. Sichel resigned to accept a
position with another financial institution.
Form 10-Q
Page 25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bryn Mawr Bank Corporation
Date: August 4, 1999 By:/s/ Robert L. Stevens
------------------- ------------------------
Robert L. Stevens
Chairman,
President & Chief
Executive Officer
Date: July 29, 1999 By:/s/ Joseph W. Rebl
-------------------- ------------------
Joseph W. Rebl
Treasurer and
Assistant Secretary
Form 10-Q
Page 26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 20,561 0
<INT-BEARING-DEPOSITS> 97 0
<FED-FUNDS-SOLD> 8,738 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 29,501 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 314,271 0
<ALLOWANCE> 4,243 0
<TOTAL-ASSETS> 392,559 0
<DEPOSITS> 330,880 0
<SHORT-TERM> 10,000 0
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0 0
0 0
<COMMON> 5,147 0
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<TOTAL-LIABILITIES-AND-EQUITY> 392,559 0
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<INTEREST-INVEST> 1,076 448
<INTEREST-OTHER> 419 142
<INTEREST-TOTAL> 13,829 7,167
<INTEREST-DEPOSIT> 2,680 1,336
<INTEREST-EXPENSE> 2,680 1,336
<INTEREST-INCOME-NET> 11,149 5,861
<LOAN-LOSSES> 125 62
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 14,877 7,834
<INCOME-PRETAX> 5,734 2,892
<INCOME-PRE-EXTRAORDINARY> 5,734 2,892
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,844 2,002
<EPS-BASIC> .88 .46
<EPS-DILUTED> .84 .44
<YIELD-ACTUAL> 6.22 0
<LOANS-NON> 523 0
<LOANS-PAST> 0 0
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<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,100 0
<CHARGE-OFFS> 94 0
<RECOVERIES> 112 0
<ALLOWANCE-CLOSE> 4,243 0
<ALLOWANCE-DOMESTIC> 2,404 0
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<ALLOWANCE-UNALLOCATED> 1,839 0
</TABLE>
