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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, 1999 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee Required] for the transition period
from_______________ to________________
Commission file number 0-15261.
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BRYN MAWR BANK CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
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(State of other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (610) 525-1700
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1 par value)
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period than the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __________
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
or Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares of common stock held by non-affiliates of
Registrant (including fiduciary accounts administered by affiliates*) was
$94,352,343 on February 29, 2000.
As of February 29, 2000, 4,313,250 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, 1999,
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 46 through 50. There are 144 pages in this
report.
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Form 10-K
Bryn Mawr Bank Corporation
Index
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Item No. Page
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Part I
1. Business............................................... 1
2. Properties............................................. 32
3. Legal Proceedings...................................... 36
4. Submission of Matters to a Vote of Security Holders.... 36
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 37
6. Selected Financial Data................................ 37
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 37
8. Financial Statements and Supplementary Data............ 38
9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 38
Part III
10. Directors and Executive Officers of Registrant......... 39
11. Executive Compensation................................. 45
12. Security Ownership of Certain Beneficial Owners and
Management............................................. 45
13. Certain Relationships and Related Transactions......... 45
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................ 46
</TABLE>
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 1, 2000.
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PART I
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ITEM 1. BUSINESS
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GENERAL
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BRYN MAWR BANK CORPORATION
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Bryn Mawr Bank Corporation (the "Corporation"), hereinafter sometimes
referred to as the Registrant, was incorporated under the laws of the
Commonwealth of Pennsylvania on August 8, 1986. The Corporation is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "Act"). On January 2, 1987, under a Plan of Reorganization, the
Corporation acquired all of the issued and outstanding shares of The Bryn Mawr
Trust Company (the "Bank"), through an exchange of three shares of the
Corporation stock for each share of Bank stock issued.
THE BRYN MAWR TRUST COMPANY
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The Bank, the principal subsidiary of the Corporation, is a state chartered
bank subject to the Pennsylvania Banking Code of 1965, as amended, which was
incorporated under the laws of the Commonwealth of Pennsylvania on March 25,
1889. In addition, the Bank is a member of the Federal Reserve System and,
therefore, is subject to the laws and regulations, which govern a Federal
Reserve member bank. The Bank is engaged in a general commercial and retail
banking business, providing basic banking services as well as a full range of
trust services.
TAX COUNSELLORS OF BRYN MAWR, INC.
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Tax Counsellors of Bryn Mawr, Inc. ("TCBM") was incorporated under the laws
of Pennsylvania on July 1, 1997. TCBM is a wholly owned subsidiary of
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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 maintained an office on the Island of Jersey. BMTC (Jersey) afforded the
Bank's clients the opportunity to make offshore investments, but due to a lack
of business activity, BMTC (Jersey) has ceased operation and its charter will be
cancelled.
BRYN MAWR BROKERAGE CO., INC.
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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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JOSEPH W. ROSKOS & CO., INC.
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Joseph W. Roskos & Co., Inc. ("JWR&Co") was acquired as of January 1, 1999 as
a wholly owned subsidiary of the Corporation. JWR&Co offers high quality
personalized family business office services to high net worth individuals,
including accounting, tax preparation services, consulting and fiduciary support
services.
CDC CAPITAL MANAGEMENT INC.
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CDC Capital Management Inc. ("CDC") was acquired in January 1999 as a wholly
owned subsidiary of the Corporation. CDC began operating in January 1999. CDC
provides investment consulting services to retirement plans, foundations, and
high net worth individuals.
SUMMARY
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The Corporation will, through its subsidiaries, especially the Bank, seek to
market its services 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, brokerage related services through BM Brokerage, family business
office services through JWR&Co and investment advisory services through CDC to
its customers, primarily in its market in Montgomery, Delaware and Chester
counties of Pennsylvania and to successfully address the other challenges in the
ever changing competitive financial services market.
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OPERATIONS
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BRYN MAWR BANK CORPORATION
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The Corporation had no active staff as of December 31, 1999 and conducted no
activities other than those activities through its subsidiaries, the Bank,
Insurance Counsellors, BM Brokerage, TCBM, Joseph W. Roskos & Co. and CDC.
A complete list of directors and officers of the Corporation, as of March 1,
2000 is incorporated by reference to page 11 and 12 of the Corporation's Annual
Report to Shareholders for the year ended December 31, 1999.
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, 1999,
the market value of assets administered by the Bank's Investment Management and
Trust Division was $1,887,000,000. 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 1999 residential mortgage interest rates increased, making residential
mortgage refinancing less attractive to borrowers, compared to
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similar activity in 1997 and 1998. As of March 1, 2000, the Bank had no
commissioned mortgage originators.
The Bank originated and sold $73,921,000 in residential mortgages to the
secondary market in 1999 compared to $134,676,000 originated and sold in 1998.
Net gains and loan fee income on such transactions amounted to $984,000 in 1999
compared to $1,647,000 in 1998. During 1997 the Bank originated and sold
$75,874,000 in residential mortgage loans, generating $1,091,000 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. That agreement is incorporated by reference into the
Corporation's 10-K, filed with the Commission on March 31, 1995.
At December 31, 1999, the Bank had 218 full time and 33 part time employees,
including 106 officers, equaling 234.5 full time equivalent staff.
TAX COUNSELLORS OF BRYN MAWR, INC.
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TCBM's operation employs three CPAs (the "Tax Professionals"), having
significant tax planning and preparation background and some formerly employed
by a "Big Five" accounting firm. As of March 1, 2000, there are a
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total of 6 employees. This includes 4 accountants and 1 attorney specializing in
estate planning. The staff of TCBM, provides 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 is a full-service insurance agency, which enables the
Bank to offer insurance related products and services to its customer base. This
includes 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 4 licensed insurance agents and a supporting
staff, who have significant expertise in the design, sale and service of
insurance products. Insurance Counsellors has six major insurance companies for
property and casualty, in excess of twenty life and health companies and
agreements with life agents and employee benefit companies for specialized
insurance needs.
BRYN MAWR BROKERAGE CO., INC.
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BM Brokerage offers 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 December 31, 1999, BM Brokerage had 1
employee. BM Brokerage generated $194,000 of revenue during 1999.
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CDC CAPITAL MANAGEMENT INC.
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CDC is an investment advisor registered with the United States Securities and
Exchange Commission. CDC provides investment consulting services to retirement
plans, foundations, and high net worth individuals. As of December 31, 1999, CDC
had 4 employees. During 1999 CDC generated $1,024,215 of revenues.
JOSEPH W. ROSKOS & CO. INC.
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JWR&Co provides family business office services to high net worth
individuals. Thus, JWR&Co offers to the clients of all the Bryn Mawr companies
access to high quality personalized financial services such as accounting, tax
preparation services, consulting and fiduciary support services to our
customers. As of December 31, 1999 JWR&Co had 21 employees and generated
$1,947,000 of revenue during 1999.
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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 Corporation's subsidiaries from the activities indicated
below.
<TABLE>
<CAPTION>
Year Ended December 31,
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C>
Commercial Loans 19% 18% 17% 18% 16%
Mortgage and Construction Loans 16 16 15 16 16
Consumer Loans 18 21 25 25 25
Home Equity/Line of Credit 2 2 2 2 3
Securities 4 5 6 7 10
Federal Funds Sold 1 2 3 1 2
- --- --- -- ---
Total Interest Income 60 64 68 70 72
Trust Services 21 23 21 17 17
Other Income * 19 13 11 13 11
-- --- --- --- ---
Total Revenues * 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
* Revenues were generated by the Bank, JWR&Co, CDC, TCBM, Insurance Counsellors,
and BM Brokerage in 1999 by the Bank, TCBM, and Insurance Counsellors in 1998
and by the Bank and TCMB in 1997. Of the Corporation's total revenues generated
in 1999, JWR&Co, CDC, TCBM, Insurance Counsellors and BM Brokerage, respectively
earned 4%, 2%, 1.5%, 1%, and .4% thereof. Respective revenues generated by TCBM
and Insurance Counsellors aggregated 1.7% and .5% of the Corporation's total
revenues in 1998. TCBM aggregated .4% in 1997. The Bank generated all revenues
during 1996 and 1995.
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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, 1999, as follows:
<TABLE>
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Disclosure Required by Industry Reference to the Corporation's
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Guide 3 1999 Annual Report
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(Financial Section)
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<S> <C>
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 6)
B. Rate/Volume Differentials.................... Rate/Volume Analyses (page 7)
C. Non-Accrual Policy........................... Loan Portfolio and Non performing Asset Analysis
(page 12)
D. Interest Rate Sensitivity
Analysis..................................... Interest Rate Sensitivity Analysis (page 15)
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 11)
B. Maturities and Sensitivity to
changes in Interest Rates.................... Loan Portfolio-Maturity Distribution (page 11)
Interest Rate Sensitivity Analysis (page 15)
C. Non-Performing Assets........................ Nonperforming Assets (page 14)
</TABLE>
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<TABLE>
<CAPTION>
Disclosure Required by Industry Reference to the Corporation's
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Guide 3 1999 Annual Report
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(Financial Section)
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<S> <C>
IV. Summary of Loan Loss Experience
A. Analysis of Loss Experience................. Allowance for Possible Loan Losses (page 8)
B. Allocation of Allowance for
Loan Losses................................. Allocation of Allowance for Possible Loan Losses
(page 8)
V. Deposits
A. Average Deposits............................ Average Daily Balances of Deposits (Page 13)
B. Maturity tables and outstanding
balances, deposits $100,000 or
more........................................ Maturity of Certificates of Deposit of $100,000 or
Greater (page 13)
VI. Return on Equity and Assets................. Selected Financial Data (page 1)
</TABLE>
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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 neither a 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 six full service branch
offices located in Bryn Mawr, Havertown, Wayne, Wynnewood, Paoli, and West
Conshohocken, Pennsylvania. In addition, there are six limited service
facilities located in life care communities in Waverly Heights, Martins Run, the
Quadrangle, Beaumont at Bryn Mawr, Bellingham and White Horse Village. All
facilities are located in Montgomery, Chester or Delaware Counties.
The banking business is highly competitive. The Bank competes not only with
other commercial banks but it also experiences competition from 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
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TCBM to provide its services anywhere in the United States. TCBM's primary
competition is from accounting and tax preparation firms. TCBM is housed in the
main office building of the Bank, located at 801 Lancaster Avenue, Bryn Mawr,
Pennsylvania.
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.
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 types of securities
related products.
CDC's market area is primarily located in the Pennsylvania, New Jersey and
Delaware. CDC is housed at 2 Bryn Mawr Avenue directly across from the main
office building of the Bank. CDC's main competition is brokerage firms and other
investment advisors.
JWR&Co's primary function is a family business office. Its market area is
Pennsylvania and targets individuals and families with substantial
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assets. JWR&Co is located in King of Prussia, Pennsylvania at 2011 Renaissance
Boulevard, Suite 200. JWR&Co's primary competition is the wealth management
departments of various banks in the area.
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SUPERVISION AND REGULATION
--------------------------
Bank holding companies, such as the Corporation, and its subsidiaries,
including the Bank, are subject to extensive regulation 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
- ----------------------------
The Corporation, as a bank holding company, is regulated under the Bank
Holding Company Act of 1956, as amended (the "Act"). The Act limits the business
of bank holding companies to banking, managing or controlling banks, performing
certain servicing activities for subsidiaries and engaging in such other
activities as the Federal Reserve Board may determine to be closely related to
banking. The Corporation and its non-bank 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.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-
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Bliley Act, or the Financial Services Act of 1999 (the "FSA"), which became
effective on March 11, 2000. The FSA amends certain portions of the Act, subject
to conditions. See "Recently Enacted Legislation" below for more information.
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 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.
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 expressly
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
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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 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.
The Act further provides that the Federal Reserve Board shall not approve any
such 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
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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 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
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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.
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 Corporation. First, FIRREA abolished the
Federal Savings and Loan Insurance Corporation and required the Federal Deposit
Insurance Corporation (the "FDIC") to establish two separate funds, the Bank
Insurance Fund ("BIF") to insure banks and the Savings Association Insurance
Fund ("SAIF") to insure savings and loan associations. Second, FIRREA amended
the Act to permit bank holding companies to acquire thrift institutions. Prior
to FIRREA, bank holding companies were permitted to acquire only failing thrift
institutions. FIRREA also abolished the restrictions on tandem operations of
acquired thrift institutions and the in-state preference for acquisitions of
failing thrifts. 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
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cease and desist orders when a depository institution or a bank holding company
or an officer or director thereof is engaged in or is about to engage in unsafe
and unsound practices. The Federal Reserve Board may require a bank holding
company, such as the Corporation, to discontinue certain of its activities or
activities of its other subsidiaries, other than the Bank, or divest itself of
such subsidiaries if such activities cause serious risk to the Bank and are
inconsistent with the Bank Holding Company Act or other applicable federal
banking laws.
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.
FDICIA substantially alters the deposit insurance assessment process. The
requirement that the FDIC (Federal Deposit Insurance Corporation) 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. FDICIA also requires the FDIC to establish a
risk-based assessment system for the deposit insurance funds no later than
January 1, 1994. In addition, FDICIA
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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 currently considered "well-capitalized".
FDICIA also requires the regulators to place a financial institution under
more intense scrutiny if its capital falls into a lower capital category. In
addition, FDICIA restricts the liquidity that is available, through the Federal
Reserve discount window, to troubled financial 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 Corporation Law
of 1988, as amended and the general business and other laws of the Commonwealth
of Pennsylvania regulating corporations.
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The Pennsylvania Legislature passed the Pennsylvania Anti-Takeover Law Act 36
of the 1990 Pennsylvania Legislature ("Act 36") on April 27, 1990 which adds
additional provisions to and amends the law of Pennsylvania concerning business
corporations (the "Corporation Law"). Specifically, Act 36 (i) modifies and
limits the fiduciary obligations of a corporation's directors, withholds voting
rights from control shares of corporation stock until consent of the
Corporation's independent shareholders is obtained at a shareholders meeting,
prevents "green mail" by providing for disgorgement of certain profits by a
control person or 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.
21
<PAGE>
The Corporation's Board opted-out of those provisions of the Act by amending
the Corporation's by-laws because it believed and continues to believe that
those provisions of the Act were not in the best economic interests of the
Corporation's shareholders. In addition, the Board believes that, without those
provisions of Act 36, the Board has sufficient flexibility under the applicable
law to protect the interest of the shareholders. As outlined in the
Corporation's definitive proxy statement for the 1992 shareholders' meeting, the
Board of Directors 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, is regulated and supervised by the Pennsylvania Department of Banking
(the "Department of Banking") and the FDIC. 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. The
Bank is not a member of the Federal Reserve System.
FDIC and Department of Banking Regulations
- ------------------------------------------
The Bank's operations are subject to certain requirements and restrictions
under state and federal laws, including requirements to
22
<PAGE>
maintain reserves against deposits, limitations on the interest rates that may
be paid on certain types of deposits, restrictions on the types and amounts of
loans that may be granted and the interest that may be charged thereon,
limitations on the types of investments that may be made and the types of
services which may be offered. Various consumer laws and regulations also affect
the operations of the Bank. These regulations and laws are intended primarily
for the protection of the Bank's depositors and customers rather than holders of
the Corporation's stock.
As a bank incorporated under and subject to Pennsylvania banking laws and
insured by the FDIC, the Bank must obtain the prior approval of the Department
of Banking and the FDIC 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 restrictions
provided by state law. Beginning in 1990, the Pennsylvania Banking Code
permitted 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
23
<PAGE>
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 deem
relevant. A significant increase in the assessment rate or a special additional
assessment with respect to insured deposits could have an adverse impact on the
results of operations and capital levels of the Bank or the Corporation.
On October 1, 1998, the FDIC adopted two rules governing minimum capital
levels that FDIC-supervised banks must maintain against the risks to which they
are exposed. The first rule makes risk-based capital standards consistent for
two types of credit enhancements (i.e., recourse arrangements and direct credit
substitutes) and requires different amounts of capital for different risk
positions in asset securitization transactions. The second rule permits limited
amounts of unrealized gains on debt and equity securities to be recognized for
risk based capital purposes as of September 1, 1998. The FDIC rules also provide
that a qualifying institution that sells small business loans and leases with
recourse must hold capital only against the amount of recourse retained. In
general, a qualifying institution is one that is well-capitalized under the
FDIC's prompt corrective action rules. The amount of recourse that can receive
the preferential capital treatment cannot exceed 15% of the institution's total
24
<PAGE>
risk-based capital.
Regulation of the Corporation-
Government Monetary Policies
----------------------------
The earnings and operations of the Corporation and its subsidiaries are
affected by the policies of regulatory authorities and legislative changes; in
particular, the policies of the Federal Reserve Board in regulating the money
supply and interest rates. Among the instruments used by the Federal Reserve
Board to implement its objectives are open-market operations in U.S. Government
securities, changes in the discount rate for member bank borrowings, changes in
reserve requirements against 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.
25
<PAGE>
The earnings of the Bank and therefore, of the Corporation are affected by
domestic economic conditions, particularly those conditions in the trade area as
well as the monetary and fiscal policies of the United States government and its
agencies.
The Federal Reserve Board also has authority to prohibit a bank holding
company from engaging in any activity or transaction deemed by the Federal
Reserve Board to be an unsafe or unsound practice. The payment of dividends
could, depending upon the financial condition of the Bank or Corporation, be
such an unsafe or unsound practice and the regulatory agencies have indicated
their view that it generally would be an unsafe and unsound practice to pay
dividends except out of current operating earnings. The ability of the Bank to
pay dividends in the 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, such as 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.
26
<PAGE>
Risk Based Capital Guidelines
- -----------------------------
The Federal Reserve Board has promulgated certain "Risk Based Capital
Guidelines" which more narrowly define bank capital, as it relates to assets,
than do prior regulatory guidelines. Under the new guidelines, various types of
Corporation assets are assigned risk categories and weighted based on their
relative risk. In addition, certain off balance sheet items are translated into
balance sheet equivalents and also weighted according to their potential risk.
The sum of both of these asset categories, referred to as Total Risk Weighted
Assets, is then compared to the Corporation's total capital, providing a Tier I
Capital Ratio, under the new guidelines. A Tier II capital ratio is also
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. 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
27
<PAGE>
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.
Recently Enacted Legislation
- ----------------------------
The recently enacted FSA repeals provisions of the Glass-Steagall Act,
which had prohibited commercial banks and securities firms from affiliating with
each other and engaging in each other's businesses. Thus, many of the barriers
prohibiting affiliations between commercial banks and securities firms have been
eliminated.
The FSA amends the Act to allow new "financial holding companies" ("FHC")
to offer banking, insurance, securities and other financial products to
consumers. Specifically, the FSA amends section 4 of the Act in order to provide
for a framework for the engagement in new financial activities. Bank holding
companies may elect to become a financial holding company if all its subsidiary
depository institutions are well-capitalized and well-managed. If these
requirements are met, a bank holding company may file a certification to that
effect with the Federal Reserve Board and declare that it elects to become a
FHC. After the certification and declaration is filed, the FHC may engage either
de novo or through an acquisition in any activity that has been determined by
the Federal Reserve Board to be financial in nature or incidental to such
financial activity. Bank holding
28
<PAGE>
companies may engage in financial activities without prior notice to the Federal
Reserve Board if those activities qualify under the new list in section 4(k) of
the Act. However, notice must be given to the Federal Reserve Board within 30
days after the FHC has commenced one or more of the financial activities.
Under the FSA, a bank subject to various requirements is permitted to engage
through "financial subsidiaries" in certain financial activities permissible for
affiliates of FHC's. However, to be able to engage in such activities the bank
must continue to be well-capitalized and well-managed and receive at least a
"satisfactory" rating in its most recent Community Reinvestment Act examination.
The Corporation cannot be certain of the effect of the foregoing recently
enacted legislation on its business, although there is likely to be
consolidation among financial services institutions and increased competition
for the Corporation.
Privacy of Consumer Financial Information
- -----------------------------------------
The FSA also contains a provision designed to protect the privacy of each
consumer's financial information in a financial institution. Pursuant to the
requirements of the FSA, the financial institution regulators (the "financial
regulators") intended to better protect the privacy of a consumer's financial
information maintained in financial institutions. The regulations are designed
to prevent financial institutions, such as the Bank, from disclosing a
consumer's nonpublic personal information to third parties that are not
affiliated with the financial institution.
However, financial institutions can share a customer's personal
29
<PAGE>
information or information about business and corporations with their affiliated
companies. The regulations also provide that financial institutions can disclose
nonpublic personal information to nonaffiliated third parties for marketing
purposes but the financial institution must provide a description of its privacy
policies to the consumers and give the consumers an opportunity to opt-out of
such disclosure and, thus, prevent disclosure by the financial institution of
the consumer's nonpublic personal information to nonaffiliated third parties.
The financial regulators are implementing the requirements of these important
regulations to, among other things, provide guidance concerning what are
"nonpublic personal information", "consumers", and "customers", as well as about
the required timing for notices to customers and the means by which customers
can exercise their rights to opt-out of disclosure of their personal
information. The vital privacy provision of the FSA will require significant
effort by the staff for the Bank and the Corporation to implement.
Government Policies and Future Legislation
------------------------------------------
As the enactment of the FSA confirms, from time to time, various proposals
are made in the United States Congress as well as Pennsylvania legislature and
by various bank regulatory authorities which would alter the powers of, and
place restrictions on, different types of bank organizations. Among current
proposals of significance to the Corporation or its subsidiaries are the
continued liberalization of the restrictions on the acquisitions of out-of-state
banks by bank holding companies, the expansion of the powers of banks and thrift
institutions, the liberalization of the
30
<PAGE>
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
- -------------------------------
The non-bank subsidiaries of the Corporation are also subject to regulation
and examination by the Federal Reserve Board and must file periodic reports with
the Federal Reserve Board.
31
<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 1999 Annual Report. The second property became the location of the
Bank's Investment Management and Trust Division in mid-December, 1989. The real
property owned by the Corporation and the Bank, other than that contiguous to
the Bank's main office is free and clear of all liens and encumbrances. Below is
a schedule of all properties owned or leased by the Corporation or its
subsidiaries.
The Bank:
- --------
Date Acquired
Current Banking Office Address or Opened
- ---------------------- ------- ---------------
Main Office and Principal 801 Lancaster Avenue 1889
Place of Business (owned) Bryn Mawr, PA 19010
Branch Office/Operations 330 E. Lancaster Avenue 1985
Center (owned) Wayne, PA 19087
Branch Office/Admin. 18 W. Eagle Road 1987
Office (owned) Havertown, PA 19083
32
<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 200 Barr Harbor Drive
West Conshohocken, PA 19428
Office Space (leased) 2&6 Bryn Mawr Avenue (7) 1999
through March 1, 2028 Bryn Mawr, Pa. 19010
Branch Office (leased) White Horse Village (2) 2000
through March 1, 2005 535 Gradyville Road
Newtown Square, PA.
33
<PAGE>
<TABLE>
<CAPTION>
The Corporation:
- ----------------
Date Acquired
Other Facilities Address or Opened
- ----------------- ------- -------------
<S> <C> <C>
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
CDC Captial Management, Inc.:
- -----------------------------
Office Space (leased) 2 Bryn Mawr Avenue (8) 1999
month-to-month basis Bryn Mawr, PA 19010
Joseph W. Roskos, Inc.:
- -----------------------
Office Space (leased) 2011 Renaissance Blvd.(9) 1999
month-to-month basis Suite 200
King of Prussia, PA 19406
</TABLE>
(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
34
<PAGE>
and a meeting room, and was 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.
(7) This lease is for 24,800 square feet of office space to house the
support staff currently located in the Bank's main office at 801
Lancaster Avenue. The support areas which will relocate are Audit, Human
Resources, Marketing, and Comptrollers.
(8) This lease is for 770 square feet of office space to house CDC's staff.
The lease is on a month-to-month basis.
(9) This lease is for 7,527 square feet of space to house the employees of
JWR&Co which is located in King of Prussia, Pennsylvania. The term of
the lease is for 66 months (5 years and six months) which commenced
February, 1999.
35
<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 proceedings other than
ordinary routine litigation incident to their businesses.
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.
36
<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 31 of
the Financial Section of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1999.
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, 1999.
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"
on pages 2 to 17 of the Financial Section of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1999.
37
<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 18 to 37 of
the Financial Section of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1999.
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.
38
<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 5 through 8 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:
<TABLE>
<CAPTION>
AGE AS OF OFFICE WITH THE
NAME MARCH 1, 2000 CORPORATION AND/OR BANK
---- ------------- -----------------------
<S> <C> <C>
Robert L. Stevens 62 Chairman, President and Chief
Executive Officer, Director of
Corporation and Bank
Samuel C. Wasson, Jr. 61 Secretary and Director of Corporation
and Bank and Vice Chairman of Bank
Joseph W. Rebl 55 Treasurer of Corporation and Senior
Vice President, Treasurer & Chief
Financial Officer of Bank
Robert J. Ricciardi 51 Vice President of the Corporation and
Executive Vice President of the Bank,
Chief Credit Policy Officer
Paul M. Kistler 63 Senior Vice President of Bank, Human
Resources, Facilities, Security and
Compliance
Thomas M. Petro 41 Senior Vice President of
Bank-Investment Management
Joseph W. Roskos 51 Executive Vice President of Trust
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
AGE AS OF OFFICE WITH THE
NAME MARCH 1, 2000 CORPORATION AND/OR BANK
---- ------------- -----------------------
<S> <C> <C>
Leo M. Stenson 49 Senior Vice President and Auditor of
Bank
Joseph G. Keefer 41 Senior Vice President and Chief
Lending Officer
Alison E. Gers 42 Senior Vice President
Marketing
June M. Falcone 33 Senior Vice President-Banking
Operations
Richard J. Fuchs 51 Group Vice President
Community Banking
</TABLE>
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 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
40
<PAGE>
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
41
<PAGE>
over responsibility for the Bank's marketing function to Mr. Petro. In early
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. In January 1999, Mr. Petro was
appointed to the additional role of President and Chief Executive Officer of
Bryn Mawr Brokerage Company, Inc., a newly formed subsidiary of the Corporation.
In December 1999, Mr. Petro assumed responsibility for the Investment Division
and turned over responsibility for the Bank's Community Banking Division to Mr.
Fuchs. In January 2000, Mr. Petro was appointed to the additional role of
Chairman of CDC Capital Management, Inc.
Mr. Roskos was employed by the Corporation on January 1, 1999 as President of
JWR&Co, a wholly owned subsidiary, coinciding with the acquisition of that
company by the Corporation. Prior to 1999, Mr. Roskos was the majority
shareholder and president of JWR&Co. In May 1999, Mr. Roskos was appointed
Executive Vice President of the Bank to serve as administrative head of the
Trust and Investment Division and a Vice President of the Corporation. In
42
<PAGE>
October 1999, he was elected Chairman of JWR&Co. In December 1999, Mr. Roskos
turned over responsibility for the investment management function to Mr. Petro
while continuing to head the Trust Division.
Mr. Stenson was employed by the Bank as Auditor in 1982, was elected Vice
President and Auditor in 1987 and was formerly an Assistant Vice President of
Western Savings Bank. In December 1996, Mr. Stenson was elected Senior Vice
President and Auditor. 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, where 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 Vice 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 third party life
and health insurance products for National Liberty Marketing.
Ms. Falcone was employed by the Bank as a Junior Accountant in the
43
<PAGE>
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 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.
Mr. Fuchs was employed by the Bank in January 1993 as Vice President-Branch
operations. He was promoted to Group Vice President-Branch Operations in
December 1997 and assumed responsibility for the Community Banking Division in
December 1999. Mr. Fuchs had previously been employed by the Bank from 1971
1987. In September 1987 he resigned his positions as Vice President-General
Banking to pursue other business interests. From 1987 until he rejoined the
Bank in 1993 Mr. Fuchs owned and operated a retail franchise.
None of the above executive officers has any family relationship with any other
executive officer or with any director of the Corporation or Bank.
44
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The information required by this Item 11 is incorporated by reference on
pages 8 through 18 of the definitive proxy statement of the Corporation, filed
with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
--------------------------------------------------
OWNERS AND MANAGEMENT
---------------------
The information required by this Item 12 is incorporated by reference on page
2, and pages 6 through 8 of the Corporation's definitive proxy statement, filed
with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
There were no relationships or transactions required to be disclosed in this
Item 13 pursuant to the instructions contained in the form for this report, as
discussed on page 16 of the Corporation's definitive proxy statement, filed with
the Securities and Exchange Commission pursuant to Regulation 14A.
45
<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 incorporated
by reference to Form S-4 of the Registrant, No. 33-9001.
(B) By-Laws of the Registrant, as amended July 20, 1990, is incorporated
by reference to the Corporation's 10-K, filed with the Securities and
Exchange Commission on March 26, 1991.
4 - Instruments defining the rights of security holders
--------------------------------------------------------
Articles of Incorporation and By-Laws: See Item 3(A) & (B) above.
10 - Material Contracts
-----------------------
(A) Agreement dated December 31, 1990, between The Bryn Mawr Trust Company and
Mellon Bank, N.A. is incorporated by reference to the Corporation's 10-K,
filed with the Securities and Exchange Commission on March 26, 1991.
(B) Mortgage dated December 16, 1988 between Fidelity Mutual Life Insurance
Company and Bryn Mawr Bank Corporation is incorporated by reference to the
Corporation's 10-K, filed with the Securities and Exchange Commission on
March 28, 1990.
(C) Mortgage dated May 18, 1988 between John A. Sparta and Helen M. Sparta of
the one part and Bryn Mawr Bank Corporation of the other part, is
incorporated by reference to the Corporation's 10-K, filed
46
<PAGE>
with the Securities and Exchange Commissions on March 28, 1990.
(D) Agreement dated December 20, 1990 between Bryn Mawr Bank Corporation and
Profit Research by reference to the Corporation's and Exchange Commissions
on Consulting, Inc., is incorporated 10-K, filed with the Securities March
28, 1990.
(E) Letter of Understanding dated December 20, 1990, between Bryn Mawr Bank
Corporation and Profit incorporated by reference to the Securities and
Exchange Research Group, Inc., is Corporation's 10-K, filed with
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.
The Bryn Mawr Bank Corporation Amended and Restated 1986 Stock
Option and Stock Appreciation Plan, is hereby incorporated by
reference to the Corporation's Proxy Statement dated March 14,
1994 and filed with the Commission as Appendix A to the Proxy Statement on
March 15, 1994.
(H) License Agreement dated December 30, 1994, between Bryn Mawr Bank
Corporation and FIserv Cir, Inc. is incorporated by reference to the
Corporation's 10-K, filed with the Securities and Exchange Commission on
March 31, 1995.
(I) The Bryn Mawr Bank Corporation Non-Employee Directors Stock Option Plan, is
hereby incorporated by reference to the Corporation's Proxy Statement 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
47
<PAGE>
the Proxy Statement.
(K) Agreement dated May 2, 1997, between The Bryn Mawr Trust Company and
Marshall and Ilsley Corporation, to provide data processing services to the
Bank's Investment Management and Trust Division 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 incorporated by reference into this filing of
the Corporation's Form 10-K.
(M) Lease dated March 1, 1999 between The Bryn Mawr Trust Company and Anthony
J. Marcozzi and The Real Viking, Inc. for the property and the buildings
known as 2 and 6 Bryn Mawr Avenue. The term of this lease is for an initial
period of twenty-nine years with the option to extend for one-ten year
period with the same terms and conditions as the initial lease.
13 - Annual Report to Security Holders
- ---------------------------------------
The Registrant's 1999 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
48
<PAGE>
Name State of Incorporation
---- ----------------------
The Bryn Mawr Trust Company (Jersey), Ltd. Island of Jersey,
Channel Islands
Bryn Mawr Brokerage Co., Inc. Pennsylvania
Joseph W. Roskos Co., Inc. Pennsylvania
CDC Capital Management, Inc. Pennsylvania
23 - Consent of Independent Accountants
- ---------------------------------------
Consent of Independent Accountants filed herewith as Exhibit 23.
27 - Financial Data Schedule
- ----------------------------
Financial Data Schedule is filed herewith as Exhibit 27
99 - Portions of the Proxy Statement
- ------------------------------------
Excerpts from the Registrant's Proxy Statement for its 2000 Annual
Meeting to be held on April 18, 2000 are filed with the Securities and
Exchange Commission on March 7, 2000 as Exhibit 99.
(b) No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1999.
49
<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 37 of the Financial Section of the
Corporation's 1999 Annual Report to Shareholders.
Consolidated Financial Statements and related notes are incorporated by
reference to the Financial Section of the Corporation's 1999 Annual Report to
Shareholders, and may be found on the pages of said Report as indicated in the
parenthesis:
Balance Sheets, December 31, 1999 and 1998 (page 18)
Statements of Income for the years ended December 31, 1999, 1998 and
1997 (page 19)
Statements of Comprehensive Income for the years ended December 31,
1999, 1998 and 1997 (page 22)
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997 (page 21)
Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997 (page 20)
Notes to Financial Statements (pages 23 to 36)
Supplementary Data:
Quarterly Results of Operations are incorporated by reference to the information
under the caption "Selected Quarterly Financial Data (Unaudited)", in Note 18 on
page 34 of the Financial Section of the Corporation's Annual Report to
Shareholders for the fiscal years ended December 31, 1999 and 1998.
Financial Statement Schedules are omitted because of the absence of the
conditions under which they are required or because the information called for
is included in the Consolidated Financial Statements or notes thereto.
Exhibits:
For information regarding exhibits, including those incorporated by reference,
see pages 46 through 50 of this report.
50
<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, 2000
- ----------------------------- --
Robert L. Stevens and Chief Executive
Officer (Principal Executive
Officer) and Director
/s/ Joseph W. Rebl Treasurer (Principal March 23, 2000
- ----------------------------- --
Joseph W. Rebl Financial and Principal
Accounting Officer)
/s/ Richard B. Cuff Director March 23, 2000
- ----------------------------- --
Richard B. Cuff
_____________________________ Director March __, 2000
Warren W. Deakins
_____________________________ Director March __, 2000
John D. Firestone
/s/ William Harral III Director March 25, 2000
- ----------------------------- --
William Harral III
Director March ___, 2000
_____________________________
Wendell F. Holland
51
<PAGE>
NAME TITLE DATE
---- ----- ----
/s/ Phyllis M. Shea Director March 24, 2000
- --------------------------- --
Phyllis M. Shea
____________________________ Director March __, 2000
B. Loyall Taylor, Jr.
/s/ Nancy J. Vickers Director March 24, 2000
- --------------------------- --
Nancy J. Vickers
/s/ Samuel C. Wasson, Jr. Director March 24, 2000
- --------------------------- --
Samuel C. Wasson, Jr.
Director March __, 2000
- ---------------------------
Thomas A. Williams
52
<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, 1999
____________________________________________________________
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
53
<PAGE>
EXHIBIT 10(M)
MASTER LEASE
------------
THIS MASTER LEASE (this "Lease"), is made and entered into as of March
1, 1999, by and between Anthony J. Marcozzi, and The Real Viking, Inc. a
Pennsylvania business corporation, a joint venture (collectively the "Lessor")
and The Bryn Mawr Trust Company, a Pennsylvania banking institution subject to
the Pennsylvania banking Code of 1965, as amended (the "Lessee")
RECITALS:
WHEREAS, the Lessor is the owner of certain lots or pieces of ground
with the buildings know as 2 and 6 Bryn Mawr Avenue (the "Buildings") and other
improvements erected thereon located in the Township of Lower Merion, County of
Montgomery and Commonwealth of Pennsylvania described on Exhibit A attached
---------
hereto and by this reference incorporated herein (the "Property");
WHEREAS, the Buildings contain office and commercial facilities
available for lease which have been leased by the Lessor to tenants for such
purposes for many years;
WHEREAS, the Lessor desires to lease the Property and the Buildings to
the Lessee pursuant to the terms of this Lease which grant the Lessee exclusive
responsibility for the Property, its management and the leasing of the Buildings
to current and future tenants;
WHEREAS, the Lessor desires to lease the Property and the Buildings to
the Lessee and the Lessee desires to lease the Property and the Buildings from
the Lessor on the terms and conditions set forth in this Lease;
NOW THEREFORE, in consideration of the rents, covenants and agreements
contained herein, for and in consideration of the mutual promises herein made
and for other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound, Lessor and
Lessee hereby agree as follows:
1. LEASE OF THE PROPERTY. Lessor is the owner of the Property and
Buildings and Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor the entire Property and the Buildings containing an aggregate of
approximately 24,800 square feet of floor area as shown on Exhibit B attached
---------
hereto.
<PAGE>
2. TERM.
2.1 Term. The initial term of this Lease shall be for twenty-nine (29)
----
years, beginning on the Commencement Date (defined in Section 2.2), and ending
-----------
on the last day of the month in which the 29th annual anniversary of the
Commencement Date occurs (the "Expiration Date"), unless sooner terminated or
extended as provided herein (the "Initial Term") . For purposes of this Lease,
the word "Term" shall mean the Initial Term and any Extension Term (as defined
in Section 2.4).
-----------
2.2 Deliveries. This Lease shall commence upon delivery of the Property and
----------
Buildings by Lessor to the Lessee and acceptance of the Property and Buildings
by Lessee (the "Commencement Date") . Lessee shall not be deemed to have
accepted possession of the Property and Buildings until each of the following
conditions has been satisfied: (a) Lessor shall execute and/or deliver to Lessee
each of the documents specified in Section 12.1 of this Lease, (b) Lessee shall
------------
execute and deliver to Lessor each of the documents described in Section 12.3 of
------------
this Lease; and (c) Lessor and Lessee shall execute and deliver a fully executed
counterpart of this Lease, and a written notice of delivery and acceptance of
the Property and Buildings. Lessee shall not be required to take possession of
the Property and Buildings prior to March 1, 1999 (the "Scheduled Delivery
Date").
2.3 Lease Year. For the purpose of this Lease, the term "Lease Year" shall
----------
mean and refer to that period of twelve (12) full consecutive calendar months
beginning with the first full calendar month of the term of this Lease and each
subsequent period of twelve (12) consecutive calendar months during the term of
this Lease, provided that if the Term commences on other than the first day of a
calendar month, then the initial fractional month of the term of this Lease plus
the next succeeding twelve (12) full calendar months shall constitute the first
Lease year of the term of this Lease.
2.4 Extension of this Lease.
-----------------------
2.4.1 Lessee shall have the option to extend the term of this
Lease for one (1) consecutive ten (10) year period (the "Extension Term"), upon
the same terms and conditions as contained in this Lease and the rent for the
Extension Term shall be as set forth in Article 3 below. To exercise the
---------
extension option, Lessee shall give written notice (the "Lessee's Extension
Notice") of the Lessee's desire to extend this Lease to Anthony J. Marcozzi,
while he is the Lessor, not less than two (2) years prior to the Expiration Date
and to any person who has purchased the Buildings and Property from the Lessor
not less than one (1) year prior to the Expiration Date. Lessee's Extension
Notice shall be
2
<PAGE>
effective to extend the Term of the Lease without further documentation except
as expressly provided in Section 2.4.2.
-------------
2.4.2 The Lessor and the Lessee hereby both represent and warrant that the
terms and conditions applicable to any Extension Term of this Lease including,
without limitation, the rent payable by the Lessee for the Extension Term, which
the Lessee has an option to obtain pursuant to Section 2.4.1 hereof, have not
been determined by the Lessor and the Lessee and the terms and conditions of any
Extension Term are subject to negotiations by the Lessor and Lessee if, and
when, the Lessee exercises its option to obtain an Extension Term. At any time
after Lessee has exercised its option to extend this Lease and the rent for the
Extension Term has been finally determined, Lessor and Lessee, upon request of
either, will sign and acknowledge a written memorandum evidencing Lessee's
exercise of the extension option and stating the date to which such Extension
Term will extend the Term and the rental rates that will be applicable during
such Extension Term.
3. RENT.
3.1 Rent. Lessee shall pay to Lessor, in such coin or currency of the
----
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, without any setoff or reduction whatsoever,
at the address stated herein, or to such other person or at such other place as
Lessor may designate in writing, a net annual rent, which rent shall be adjusted
as provide in this Article 3, in equal monthly installments, in advance on the
---------
first day of each month during the term of this Lease, the first installment of
which shall be paid on the date of execution of this Lease and all other charges
payable by the Lessee hereunder, as follows:
(a) For the first year through fifth year of this Lease an
annual rental payment of Two Hundred Twenty Three Thousand Two Hundred Dollars
($ 223,200);
(b) For the sixth year through tenth year of this Lease an
annual rental payment of Two Hundred Fifty Two Thousand Eight Hundred and Six
Dollars ($ 252,806);
(c) Beginning with the eleventh year of this Lease through the
twenty ninth year of this Lease the net annual rental required to be paid by the
Lessee pursuant to this Lease shall be increased (the "Adjusted Rent") on the
first day of each Rent Adjustment Period' based on percentage changes in the
Consumer
- -----------------
1 "Rent Adjustment Period" shall for purposes of this Lease mean the
three (3) five (5) year periods and one (1) four year
3
<PAGE>
Price Index (the "Price Index") in the manner specified on Exhibit C attached
---------
hereto and by this reference incorporated herein. For purposes of this Lease the
Price Index shall mean the "U.S. Department of Labor, Bureau of Labor
Statistics, Washington, DC 20212 Consumer Price Index all Urban Consumers -
(CPI-U) U.S. city average (1982.84 = 100)" specified for "All Items" during each
Rent Adjustment Computation Period;2
(d) Notwithstanding any provision of the Article 3 the increase in the
---------
Adjusted Rent as a percentage of the rent paid by the Lessee during the prior
Rent Adjustment Period shall be a minimum of Three Percent (3%) but shall not
exceed Seven Percent (7%) of the annual rent paid by the Lessee during the
immediately preceding Rent Adjustment Period.
(e) In addition, Lessee shall pay all other charges and expenses of the
Building and Property as they are due and payable in a manner to avoid late
charges and penalties and fines and avoid liens on the Building and Property.
Expenses, charges and rent for any period during the term of this Lease, other
than one calendar month, shall be prorated on a daily basis based on a three
hundred sixty-five (365) day year.
(f) If either Lessor or Lessee claims to be" entitled to a rent adjustment
in accordance with the above provisions, such party shall send a notice to the
other setting forth the adjusted rent claimed to be payable. Such notice shall
be sent within twelve (12) months following publication of the applicable Price
Index. In the event of an upward adjustment in the rent, Lessee shall pay to
Lessor, within fifteen (15) business days of receiving such notice, the
additional rent owed for the prior Lease Year and for the months which have
elapsed in the then current Lease Year. In the event of an improper calculation
of the Adjusted Rent, Lessee shall be entitled to deduct from the rent payment
or payments next succeeding such notice an amount equal to the reduction in rent
for the prior Lease Year and for the months which have elapsed in the then
current Lease Year. In the event of an adjustment in the rent applicable to the
Lease Year during which this Lease terminates, Lessee shall pay to Lessor any
additional rent owed for the months elapsed in such Lease Year. Lessor shall pay
to Lessee an amount equal to the reduction in rent for the months elapsed in
such Lease Year, within fifteen (15) business
- --------------------
period from the eleventh (11th) through the twenty ninth (29th) years of the
term of this Lease.
2 "Rent Adjustment Computation Period" for the purposes of this Lease shall mean
the five (5) year period of time ending in each case one (1) year before each
Rent Adjustment Period.
4
<PAGE>
days of receiving such notice.
(g) In the event the Price Index hereinabove referred to ceases to
incorporate a significant number of the items set forth in the copy hereto
annexed to Exhibit C, or if a substantial change occurred in the manner of
computing such Price Index, then the Price Index shall be deemed to be the
figure that would have resulted had no change occurred in the manner of
computing such Price Index. In the event the Price Index (or a successor or
substitute index) becomes unavailable, a reliable governmental or other
nonpartisan publication evaluating the information theretofore used in
determining the Price Index shall be used in lieu of such Price Index.
4. CONDITION OF THE PROPERTY, AND LESSEE'S POSSESSION OPERATION AND MANAGEMENT
OF THE BUILDINGS AND PROPERTY.
4.1 Condition of the Property. To the best of the Lessor's knowledge and
-------------------------
belief, as of the Commencement Date, all structural parts of the Property and
the Buildings including, without limitation, the foundation, roof, exterior
walls, plumbing, electrical, heat ventilation, air conditioning and other
mechanical systems (a) meet and comply with all federal, state, and local laws,
ordinances and regulations and all handicapped accessibility standards,
including, without limitation, those promulgated under the Americans With
Disabilities Act. ("ADA"), and (b) are in good, workable and sanitary order,
condition, and repair at the time of delivery of the Property to Lessee. Lessor
represents and warrants that it has disclosed to Lessee any conditions or
restrictions within Lessor's actual knowledge that would adversely affect
Lessee's use and enjoyment of the Buildings and Property as contemplated by this
Lease.
4.2 Lessor's Obligations. Lessor represents and warrants that it installed
--------------------
new signage indicating the DANGER involved with the electrical transformer at
its sole cost and expense in a good and workmanlike manner before delivering the
Property to Lessee. Lessor shall notify Lessee in writing when the Property and
Buildings are ready for Lessee's occupancy and Lessee shall arrange promptly to
inspect the Property and the Buildings before it signs the Lease. The Lessor has
let the Property and the Buildings in their present condition and without any
representations on the part of the Lessor, its officers, employees, servants
and/or agents. It is understood and agreed that Lessor is under no duty to make
repairs or alterations at the time of letting or at a time thereafter.
4.3 Delay in Deliver of Possession of Property. Lessee is entitled to
------------------------------------------
possession of the Property on the Scheduled Delivery Date. If the Commencement
Date does not occur within ten
5
<PAGE>
(10) days of the Scheduled Delivery Date, Lessee, at its option, may terminate
this Lease upon written notice to Lessor. If Lessee elects to terminate this
Lease, in addition to liquidated damages due for failure to fulfill the Letter
of Intent, Lessor shall reimburse Lessee for all of Lessee's expenses incurred
in connection with this Lease, including, without limitation, the lease
negotiation costs and expenses (including the allocated cost of in-house
personnel and outside counsel's fees, costs and expenses for the Lessee).
5. USE, OPERATION AND COMPLIANCE.
5.1 Use. Lessee may lease and release the Buildings and the Property and/or
---
use and occupy the Buildings and Property for office space and permitted retail
use and related uses and otherwise as permitted by the laws and ordinances.
5.2 Operations. Lessee shall manage and lease the Property and Buildings
----------
and operate its business conducted on the Property and in the Buildings in such
manner and at such hours as Lessee considers proper in Lessee's business
judgment.
5.3 Compliance with Law. During the Term, Lessee, at its expense, shall
-------------------
comply promptly with all laws, rules, and regulations made by any governmental
authority having jurisdiction over Lessee's use of the Property and Buildings
pertaining to (a) the physical condition of any improvements constructed by
Lessee on the Property and in the Buildings ; and (b) Lessee's business
operations in the Property. Lessee shall be required to make any seismic or
structural upgrades, repairs, improvements or alterations to the Property or the
Buildings in order to comply with the requirements of this Section 5.3. Lessee,
-----------
at its sole cost and expense, shall comply with all other laws, rules,
regulations, and ordinances made by any governmental authority affecting the
Buildings and the Property including, without limitation, all handicapped
accessibility requirements.
6. MAINTENANCE, REPAIRS, AND ALTERATIONS.
6.1 Lessee's Obligations. Subject to the provisions of Section 6.2.and
-------------------- ---------------
Article 9, Lessee, at Lessee's expense, shall keep the Property and the
- ---------
Buildings in good order and repair, and shall be solely responsible for all
costs for the operation, maintenance, repair and replacement of the Property and
the Buildings, including the paved areas, and it shall at all times keep the
sidewalks, driveways and parking areas clean and free of snow and ice
accumulation. Lessor represents and warrants that it has or shall transfer or
assign to Lessee all warranties, express or implied, under any contract or
subcontracts relating to any improvements or equipment Lessor built or installed
within the Property and the
6
<PAGE>
Buildings including, without limitation, any warranty for the HVAC system, the
roofs and replacement windows of the Buildings and the like.
6.2 Lessor's Obligations. Anything herein to the contrary notwithstanding,
--------------------
it is understood and agreed that Lessor shall not be responsible for any costs
for the operation, maintenance, repair and replacement of the Property and the
Buildings.
6.3 Surrender. Upon the expiration or termination of this Lease, Lessee
---------
shall surrender the Property to Lessor in broom clean condition, except for
ordinary wear and tear.
6.4 Alterations and Improvements. Lessee, at Lessee's cost, may install
----------------------------
such improvements to the interior of the Buildings on the Property as Lessee
deems necessary or desirable for the conduct of Lessee's business and the
leasing of those premises. Lessee shall submit the plans and specifications
(collectively the "Plans") for all exterior structural changes or improvements
to the Property or Buildings which the Lessee proposes for Lessor's review and
approval. Lessor shall have a period of sixty (60) days (the "Review Period")
to review the Plans. Lessor shall not unreasonably withhold, condition or delay
its approval of the Plans. Lessor shall be deemed to have approved the Plans as
presented unless, on or before the last day of the Review Period, Lessor has
delivered to Lessee a written description of the specific structural items in
the Plans that are not acceptable and a description of the specific changes that
must be made to the Plans to secure Lessor's approval. Lessee shall submit
modified plans for approval by the Lessor and upon receipt of those modified
Lessor shall be deemed to have approved the Plans as presented (the "Final
Plans").
6.5 Liens. Lessee shall not permit any mechanics' or materialmen's liens to
-----
be levied against the Property for any labor or material furnished to Lessee or
to its agents or contractors; provided, however, that Lessee shall not be
required to pay or otherwise satisfy any claims or discharge such liens so long
as Lessee, in good faith and at its own expense, contests the same or the
validity thereof by appropriate proceedings and posts a bond--or takes other
steps acceptable to Lessor that stay enforcement of such lien.
6.6 Ownership and Removal of Improvements, Fixtures, Equipment and
--------------------------------------------------------------
Furnishings.
- -----------
6.6.1 All personal property, furnishings, machinery, trade fixtures,
equipment and improvements (trade or otherwise) which Lessee installs in the
Property ("Lessee's
7
<PAGE>
Property") shall remain the property of Lessee. Upon the termination or
expiration of the Term, Lessee may remove Lessee's Property from the Property
and the Buildings no later than the termination or expiration date of this
Lease. In addition, Lessee may remove from the Property and the Buildings all
items and structural characteristics installed by Lessee that are indicative of
Lessee's business and may otherwise "de-identify" the Property and the
Buildings, as Lessee reasonably believes necessary or appropriate for the
protection of Lessee's interest in Lessee's trademarks, trade names or
copyrights. Lessee shall repair any damage to the Property or the Buildings
caused by such removal, including patching and filling holes. In no event shall
Lessee remove or be required to remove any restrooms, flooring, ceilings,
utility or electrical components located inside the walls or HVAC systems. All
other utility systems will be capped and returned to a condition compatible with
code requirements.
6.6.2 Any of Lessee's property not removed from the Property and
Buildings on the date the Lease terminates or expires shall be deemed abandoned
and shall thereupon become the property of Lessor. Lessor may possess and
dispose of such property provided that the Lessor shall not use nor permit
anyone claiming through the Lessor to use on the Building or Property any item
protected by the Lessee's intellectual property rights. This provision shall
apply under all circumstances, including default by Lessee under this Lease.
7. INSURANCE AND INDEMNITY.
7.1 Lessee's Insurance. It is understood and agreed that Lessee will
------------------
comply with the insurance requirements set forth below. In the event any space
is sublet, the Lessee is responsible for ensuring that these provisions are met
by all subtentants.
7.1.1 Property Insurance. Lessee, at its sole cost and expense,
------------------
will keep the buildings and the Improvements now or hereafter located on the
Premises Insured against "All Risk" of Loss with an Insurer in an amount at
least equal to replacement value plus debris removal and building ordinance
cost. "All Risk" shall mean at a minimum coverage for Special Causes of Loss
perils including Back-Up of Sewers and Drains, Flood, Earthquake, and Boiler &
Machinery perils. Such insurance shall also provide for "loss of rents"
insurance in the amount of actual loss sustained, with Loss Payable jointly to
the Lessee and Lessor by the insurer. All coinsurance provisions must be waived
and any Deductible must beborne by Lessee. Lessor must be named as Additional
Named Insured and Loss Payee as the Lessor's interest may appear with respect to
the Buildings and Property. This policy shall permit a waiver of subrogation in
favor of Lessor, its officers, agents, and employees.
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Lessee shall bring or keep property upon the premises solely at its own
risk, and Lessee, at its sole cost and expense, will keep all personal property,
stock, and leasehold improvements now or hereafter located on the Premises
Insured against "All Risk" of Loss with an Insurer in an amount at least equal
to replacement value plus debris removal costs. This policy shall permit a
waiver of subrogation in favor of Lessor, its officers, agents, and employees.
7.1.2 Workers' Compensation and Employer's Liability Insurance. Lessee, at
--------------------------------------------------------
its sole cost and expense, will obtain Workers' Compensation Insurance complying
with the laws of the State, with minimum limits as follows:
(a) Workers' Compensation Coverage: Statutory Requirements.
(b) Employer's Liability Limit Not Less Than:
Bodily Injury by Accident: $100,000 each accident
Bodily Injury by Disease: $100,000 each employee
Bodily Injury by Disease: $500,000 policy limit
7.1.3 Commercial General Liability Insurance. Lessee, at its sole cost and
--------------------------------------
expense shall purchase and maintain Commercial General Liability Insurance
providing coverage with minimum limits of liability at all times reasonably
satisfactory to Lessor and which on the date hereof shall not be less than the
limits shown below. These limits may be satisfied through a combination of
primary and excess policies. Such policies shall name Lessor and any mortgagee,
as additional insureds on a primary basis and shall not cause any insurance
carried by Lessor or any mortgagee to contribute in the payment of any loss. The
policy shall also state that such coverage afforded to these additional insureds
shall not be invalidated by any act or negligence of the additional insured.
Limits:
------
a) General Aggregate $10,000,000
b) Products/Completed Operations Aggregate $10,000,000
c) Personal and Advertising Injury $10,000,000
d) Each Occurrence $10,000,000
e) Fire Damage (any one fire) $ 50,000
f) Medical Expense (Any one person) $ 5,000
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7.1.4 Automobile Liability. Lessee, at its sole cost and expense,
--------------------
shall purchase and maintain Commercial Automobile Liability Insurance providing
coverage with minimum limits of liability at all times reasonably satisfactory
to Lessor and which on the date hereof shall not be less than the limits shown
below. These limits may be satisfied through a combination of primary and excess
policies. Coverage is to apply to all owned, hired and non-owned vehicles. The
policy shall also state that such coverage afforded to these additional insureds
shall not be invalidated by any act or negligence of the additional insured.
Bodily Injury and Property Damage Liability- $10,000,000 Per Accident
7.1.5 Financial Rating of Insurance Companies.
---------------------------------------
(a) A.M. Best Rating: A- (Excellent) or better
(b) A.M. Best Financial Size Category: Class VIII or higher
Lessee shall provide a Certificate of Insurance evidencing these coverages.
At Lessor's request, a copy of the actual policies outlined above shall be
provided to Lessor.
The Certificate shall indicate that Lessor is Additional Named Insured,
Loss Payee and Additional Insured as reflected in Sections 7.1.1, 7.1.3 and
7.1.4 previously outlined. The Certificate shall indicate also that Lessee's
policies are Primary and shall not cause any insurance carried by Lessor or to
contribute in the payment of any loss. Moreover, it must provide that in the
event of any material change in Lessee's policies or of the cancellation or non-
renewal of Lessees insurance, thirty (30) days advance written notice must be
given to Lessor.
7.2 Indemnification by Lessee. Lessee agrees to indemnify, hold harmless
-------------------------
and defend Lessor, its officers, agents and employees (the "indemnified
parties"), from and against any all liability for loss, damages or expense for
which the indemnified parties may be held liable by reason of injury (including
death), to any person (including Lessee's employees), or damage to any property
of whatsoever kind or nature arising out of or in any manner connected with the
Lessee's maintenance, occupancy, use or activities on or arising out of the
leased premises (including activities of any contractors working on behalf of
Lessee), or any breach or default in the performance of any obligation of Lessee
to be performed under the Lease whether or not due in whole or in part to any
act, omission or negligence of the indemnified parties. It is expressly
understood and agreed that the indemnity contained in this Section covers claims
by Lessee's employees. The terms and
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conditions of this indemnification shall survive termination of this Lease.
Lessee and Lessor further agree that the laws of the Commonwealth of
Pennsylvania shall apply to the construction and application of the
indemnification and hold harmless agreement set forth above.
8. ENVIRONMENTAL LIABILITY.
8.1 Environmental Law. The term "Environmental Law" shall mean any
-----------------
federal, state, local law, statute, ordinance, regulation or order and all
amendments thereto pertaining to health, industrial hygiene, environmental
conditions or Hazardous Substances.
8.2 Hazardous Substance. The term "Hazardous Substance" shall mean
-------------------
any hazardous or toxic substances, materials or wastes, or pollutants or
contaminants as defined, listed or regulated by any Environmental Law or by
common law decision including, without limitation, chlorinated solvents;
petroleum products or byproducts; asbestos; and polychlorinated biphenyl.
8.3 Lessor's Covenants. Lessor covenants, represents, and warrants
------------------
that to the best of Lessor's knowledge, no Hazardous Substance has been
released, discharged or disposed of on, under or about the Property or, the
Buildings (or off-site of the Property which might affect the Property or the
Building) by any entity, firm or person, or from any source whatsoever.
8.4 Lessee's Use of Any Hazardous Substance. The only Hazardous
---------------------------------------
Substances Lessee may use in its operations are cleaning solvents and other
products generally used in the Buildings. Lessee will manage such use in
accordance with the Environmental Laws.
9. DAMAGE OR DESTRUCTION. If the Property or the Buildings are damaged
or destroyed by fire or any casualty, Lessee shall immediately commence and
diligently pursue to completion the repair of such damage or the rebuilding of
the Buildings and Property so that the Buildings and the Property are restored
to a condition of a quality, character and utility sufficient for Lessee's
purposes, which restoration shall be made within three hundred sixty five (365)
days of the plans for such restoration being approved by the Lessor, which
approval shall not be unreasonably withheld by Lessor. Notwithstanding anything
contained herein to the contrary, if the Lessee is unable through causes beyond
its control to repair and restore the Building(s) or the Property to a habitable
condition useable for their original purposes or to build a new building(s) on
the Property within three hundred sixty five (365) days from the date of the
Lessor's approval of such rebuilding or restoration, Lessee may terminate this
Lease without further
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obligation to Lessor by giving the Lessor written notice of such termination
within sixty (60) days from the date when it is determined that the Buildings or
the Property cannot be rebuilt or restored to habitable condition by such date.
If Lessee does not so terminate this Lease, Lessee shall continue to restore the
Buildings and the Property and be bound by this Lease. In the event of
termination of this Lease by the Lessee, Lessor shall return any prepaid rent
and other prepaid amounts to Lessee within thirty (30) days from the date of
termination of this Lease.
10. PROPERTY TAXES.
10.1 Definition of "Real Property Taxes". For purposes of this
----------------------------------
Lease, the phrase "Real Property Taxes" shall include general real estate taxes
and assessments payable with respect to the Property and Buildings that are
imposed by any authority having the power to tax any legal or equitable interest
of Lessor in the Property; provided, however, that assessments shall be prorated
and divided into the maximum number of installments permitted by law and only
the current portion shall be included in Real Property Taxes for any Lease Year.
Notwithstanding the foregoing, Real Property Taxes shall not include (a) any
inheritance, estate, succession, transfer, gift, franchise, or capital stock
tax; (b) any income taxes arising out of or related to ownership and operation
of income-producing real estate; (c) any excise taxes imposed upon Lessor based
upon gross or net rentals or other income received by the Lessor; or (d)
assessments for improvements completed prior to the Commencement Date.
10.2 Payment of Real Property Taxes. As of the Commencement Date,
------------------------------
Lessor represents and warrants that Lessor has paid in full all currently due
Real Property Taxes. The Lessee shall pay, when due during the term of this
Lease, all future Real Property Taxes. Lessee shall pay Real Property Taxes only
as such taxes become due and payable during the term of this Lease prorated for
the first and last years of the term of this Lease. Lessee shall have the right
to challenge, at its sole expense, the Real Property Taxes and Lessor agrees to
provide whatever assistance Lessee may reasonably require. Upon the request of
Lessee, and if required to preserve the right to challenge such taxes, Lessor
will pay all Real Property Taxes under protest or in such other manner as will
preserve the right to challenge such taxes. Lessee may challenge Real Property
Taxes if Lessee pays any protested amount to Lessor. Lessor will reimburse
Lessee for Lessee's pro rata share of any refund of Real Property Taxes received
as a result of any tax contest.
10.3 Personal Property Taxes. Lessee shall pay, prior to
-----------------------
delinquency, all personal property taxes assessed against Lessee directly and
applicable to personal property located in the
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Buildings and on the Property.
11. UTILITIES. Lessee shall pay all charges for water and sewer rents
and other utilities used in the Buildings during the Term of this Lease. When
feasible, such charges shall be measured through proper and sufficient meters or
submeters installed at Lessee's expense and maintained by Lessee.
12. LESSOR AND LESSEE OBLIGATION IN CONNECTION WITH THE DELIVERY OF THIS
LEASE
12.1 Lessor's Obligations. Lessor shall (a) execute and deliver to
--------------------
the Lessee an assignment, in form and content satisfactory to the Lessee of the
leases of the premises in the Buildings and such assignments shall contain
specific authority to, among other things, collect the rent from the current
tenants and terminate all the leases of the current tenants pursuant to the
terms of those leases, (b) obtain from each of the tenants of any of the leased
space in the Buildings and deliver to Lessee estoppel certificates in form and
content satisfactory to the Lessee; (c) provide to Lessee a rent roll for the
leased premises in the Buildings specifying each existing lease and any security
deposits which apply to those leases; (d) obtain and deliver to Lessee a
completed incumbency certificate for the officers of The Real Viking, Inc., By-
Laws of The Real Viking, Inc. certified by the Secretary of that corporation,
Articles of Incorporation of The Real Viking, Inc. recently certified by the
Secretary of State of the Commonwealth of Pennsylvania, a recent substance
certificate for The Real Viking, Inc. issued by the Secretary of State of the
Commonwealth of Pennsylvania, and a signed opinion of counsel for the Lessor, in
form and content satisfactory to the Lessee; (e) deliver the signed writing,
required by Section 4.2 hereof notifying the Lessee that the Property and
Buildings are ready for occupancy, and (f) deliver such additional documents as
reasonably requested by Lessee.
12.2 Year 2000 Compliance. The Lessor and Lessee agree that for
--------------------
purposes of this Lease (i) the term "Lessor's Computer Technology" shall mean
the hardware and software used by the Lessor in connection with the Lessor's
operations of the Buildings and Property; (ii) the term "Year 2000 Compliance
Program" shall mean the Lessor's plans and activities to become Year 2000
Qualified; (iii) "Year 2000 Problem" shall mean the failure of hardware and
software to correctly store and/or process date-related data for the dates
within and between the twentieth and twenty-first centuries and all other
centuries; and (iv) the term "Year 2000 Qualified" shall mean that the hardware
and software used by the Lessor, including that obtained by contract or
agreements with third parties, has been reviewed to confirm that it accurately
and
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correctly stores, processes (including, without limitation, sorting and
performing mathematical calculations), data containing date information
regardless of whether the data contains dates before or after January 1, 2000.
The Lessor represents and warrants to Lessee that the Lessor has
conducted an investigation and due diligence of its hardware and software and
has identified and assessed its Year 2000 Problem, if any, including a good
faith estimation of the costs and expenses to become Year 2000 Qualified and
that it will be Year 2000 Qualified not later than the date of this Lease.
12.3 Lessee's Obligations. Lessee shall provide to the Lessor at or
--------------------
prior to the signing of this Lease (a) a copy of the Lessee's environmental and
engineering inspection reports, (b) a copy of the appraisal of the Property and
Buildings, (c) an incumbency certificate for the officers of the Lessee, By-
Laws of the Lessee certified by the Secretary of the Lessee, Articles of
Incorporation of the Lessee recently certified by the Secretary of State of the
Commonwealth of Pennsylvania, a recent substance certificate for the Lessee
issued by the Secretary of State of the Commonwealth of Pennsylvania, and an
opinion of counsel from the counsel for the Lessee, in form and content
satisfactory to the Lessor; and (d) deliver such additional documents as
reasonably requested by Lessor.
12.4 Right of First Refusal. Except in the case of transfer of all
----------------------
or part of the Property and Buildings to a family member or related entity of
the Lessor, or during the tenure of Anthony J. Marcozzi as a Lessor, if Lessor
or its successor shall receive any bona fide offer (written or verbal) for the
purchase of the Property and Buildings, which offer Lessor shall be ready and
willing to accept, then Lessee shall have the first right to purchase the
Property and Buildings at the same price, terms, and conditions as shall be
contained in such offer. Lessor shall give Lessee written notice of the price
and all of the other terms and conditions contained in such offer; and Lessee
shall have forty-five (45) days from and after the receipt of such notice from
Lessor, in which to elect to purchase the Property and Buildings at the same
price and on the same terms and conditions as contained in such offer. Lessee
may exercise this election to purchase the Property and Buildings by giving
Lessor written notice thereof, within said forty-five (45) day period, and such
notice by the Lessee shall create a binding purchase agreement between the
parties hereto upon the price, terms1 and conditions of the offer.
If Lessee shall elect not to purchase the Property or shall fail to
give Lessor notice within the time provided for herein, then Lessor may sell the
Property but only at the same price, terms and conditions specified in the
notice Lessor gave to Lessee. If
14
<PAGE>
the Property and Buildings are not sold by Lessor within forty-five (45) days
following the submission of the offer to Lessee, Lessor shall resubmit that
offer to Lessee, in the manner provided herein, prior to making any subsequent
sale of the Property and Buildings. As used in this Section, the words Lessee
and Lessor shall include any nominee, successor or assignee thereof.
13. ASSIGNMENT AND SUBLETTING AND SALE OF PROPERTY BY LESSEE.
Lessee shall not assign this Lease but may let or sublet the whole or
any portion of the Property and the Buildings without the written consent of
Lessor. Specifically, without limitation the Lessee may, without Lessor's
consent, sublet all or any portion of the Property and Buildings or assign the
Lease to: (a) a parent, subsidiary, affiliate, division or corporation
controlling, controlled by or under common control with Lessee; (b) a successor
corporation related to Lessee by merger, consolidation, reorganization or
government action; or (c) a purchaser of substantially all of Lessee's tangible
property in the Property, provided that, as of the date of such transfer, the
purchaser reasonably has the financial ability to perform the Lessee's
obligations (in Lessee's reasonable business judgment) with respect to this
Lease and/or the Property and Buildings (each of the foregoing is a "Permitted
Transfer").
For the purpose of this Lease, any sale or transfer of Lessee's
capital stock through any public offering or public exchange or over-the-counter
market, redemption or issuance of additional stock of any class shall not be
deemed an assignment, subletting or any other transfer of the Lease or the
Property. Lessor shall not be entitled to any consideration in connection with
any assignment or sublet. If Lessor's consent is required for an assignment or
sublease, then Lessor's consent shall be deemed to have been given unless Lessor
notifies Lessee in writing of the reasons for Lessor's disapproval within ninety
(90) days of receipt of the request. Unless released in writing, Lessee shall
remain secondarily liable under this Lease following any assignment or sublease
other than a Permitted Transfer; provided, however, that Lessee's obligations
may not be enlarged or extended by any act or agreement of any assignee or
sublessee.
14. DEFAULTS AND REMEDIES.
14.1 Lessee's Defaults. The occurrence of any one or more of the
-----------------
following events shall constitute a default and breach of this Lease by Lessee:
(a) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of
15
<PAGE>
ten (10) business days after Lessor notifies Lessee in writing of such failure;
or
(b) The failure by Lessee to observe or perform any of the
covenants, conditions, or provisions of this Lease to be observed or performed
by Lessee, other than the payment of sums due hereunder, where such failure
shall continue for a period of thirty (30) days after written notice thereof
from Lessor to Lessee; provided however, that if the nature of Lessee's default
is such that more than thirty (30) days are reasonably required for its cure,
then Lessee shall not be deemed to be in default if Lessee commences such cure
within such thirty (30) day period and thereafter diligently pursues such cure
to completion.
14.2 Remedies on Default. In the event of any such uncured Lessee
-------------------
default, Lessor may, in accordance with procedures required by law, pursue one
of the following remedies:
(a) Lessor may terminate Lessee's right to possession of the
Property by any lawful means, in which case this Lease shall terminate and
Lessee shall surrender possession of the Property to Lessor within one hundred
eighty (180) days after written notice from Lessor to Lessee. In such event,
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Property and the Buildings, expenses of reletting,
including necessary renovation and alteration of the Property and the Buildings
for uses similar to Lessee's uses, and the rent and any other payment required
to be made by the Lessee pursuant to this Lease as it becomes due hereunder. If
Lessor relets the Property and the Buildings, then any rent or other concessions
given to the new lessee shall be prorated evenly throughout the entire term of
the new lease; or
(b) Lessor may maintain Lessee's right to possession, in which
case this Lease shall continue in effect whether or not Lessee shall have
abandoned the Property and the Buildings. In such event, Lessor shall be
entitled to enforce all of Lessor's rights and remedies under this Lease
including the right to recover the rent as it becomes due hereunder and any
other payments required to be made by the Lessee pursuant to this Lease as it
becomes due hereunder.
With respect to any remedy exercised by Lessor, Lessor shall have an
affirmative obligation to obtain another Lessee for the Property and the
Buildings at a fair market rental and to otherwise mitigate its damages.
14.3 Lessor's Defaults and Lessee's Remedies. The occurrence of
---------------------------------------
any one or more of the following events shall
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constitute a default and breach of this Lease by Lessor: (a) Lessor's failure to
do, observe, keep and perform any of the terms, covenants, conditions,
agreements or provisions of this Lease required to be done, observed, kept or
performed by Lessor, within thirty (30) days after written notice by Lessee to
Lessor of said failure (except when the nature of Lessor's obligation is such
that more than thirty (30) days are required for its performance, then Lessor
shall not be deemed in default if it commences performance within the thirty
(30) day period and thereafter diligently pursues the cure to completion); or
(b) the failure of any representation or warranty to be true when deemed given
hereunder. In the event of a default by Lessor, Lessee, at its option, without
further notice or demand, shall have the right to any one or more of the
following remedies in addition to all other rights and remedies provided at law
or in equity or elsewhere herein: (a) to remedy such default or breach and
deduct the costs thereof (including attorneys' fees and related expenses) from
the installments of the rent next falling due; (b) to pursue the remedy of
specific performance; (c) to seek money damages for loss arising from Lessor's
failure to discharge its obligations under the Lease; and (d) to terminate the
Lease.
15. CONDEMNATION.
15.1 Condemnation of Property. If any portion of the Property or
------------------------
Buildings is taken under the power of eminent domain, or sold by Lessor under
the threat of the exercise of said power (the act of which is herein referred to
as condemnation") , this Lease shall terminate as to the part so taken as of the
date the condemning authority takes possession of the condemned portion of the
Property or Buildings (the "Condemnation Date") and the rent payable hereunder
shall be reduced by the amount determined by multiplying the net annual rent
payable by the Lessee on the Condemnation Date by a fraction with a denominator
of the square feet of floor space of the Buildings as shown on Exhibit B and a
---------
numerator of the square feet of floor space of the Buildings which the Lessee is
unable to use because of the condemnation. If the entire Property and Buildings
are condemned, then the Lease shall automatically terminate as of the
Condemnation Date. The party to this Lease who receives the condemnor's notice
of intention to take (the "Condemnation Notice") shall immediately give a copy
of such notice to the other party.
15.2 Condemnation of the Property. If as a result of any
----------------------------
condemnation of the Property or the Buildings or any portion thereof (even
though the Buildings are not physically affected) the Property and the Buildings
are no longer reasonably suited for the conduct of Lessee's usual business in
Lessee's reasonable business judgment, then Lessee may terminate this Lease
without further obligation to the Lessor at any time after Lessee receives the
17
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Condemnation Notice by giving Lessor at least one hundred twenty (120) days
prior written notice.
15.3 Restoration. If this Lease is not terminated as to the whole
-----------
Property and Buildings, (a) it shall remain in full force and effect as to the
portion of the Property and Buildings remaining, provided the rent and all other
charges payable under this Lease shall be reduced in the same proportion that
the area taken bears to the total area of the Property and Buildings prior to
taking, and (b) the Lessor and Lessee hereby agree as soon as reasonably
possible to use the condemnation award to restore the Property and the Buildings
to complete units of the same quality, character and utility for Lessee's
purposes existing prior to the condemnation. Notwithstanding anything contained
herein to the contrary, if the restoration of the Property and/or the Buildings
is not commenced for any cause beyond its control within ninety (90) days of
Lessor's receipt of the condemnation award or is not completed within three
hundred sixty five (365) days from the Condemnation Date, then Lessee may cancel
the Lease at any time before Lessor completes the restoration. If this Lease is
terminated, Lessor shall return any deposits, all prepaid rent and other prepaid
sums to Lessee within thirty (30) days of the date. of termination of the Lease.
15.4 Award. Lessor and Lessee may each pursue any condemnation
-----
award to which it is entitled by applicable law. Lessee may recover from the
condemning authority or from Lessor (if Lessee can show that such amount was
included in Lessor's award) that portion of any net award or payment
attributable to Lessee's interest in the Property and the Buildings pursuant to
this Lease, including without limitation, the unamortized value of improvements
installed in the Property by Lessee at Lessee's expense based on straight-line
depreciation over the term of this Lease without regard to the condemnation. For
the purposes of this Section 15.4, a "net" award or payment shall mean the
------------
entire award or payment for such taking, less the actual and reasonable expenses
incurred in collecting such award or payment.
16. SIGNAGE. Lessee, at its cost, shall have the right to install or
place signs, awnings, or other advertising materials in or about the Property or
on the Buildings to the maximum extent permitted by law.
17. PERMIT CONTINGENCY. Lessee's obligations under this Lease are
conditioned on Lessee's obtaining within twenty (20) days following the mutual
execution and delivery of this Lease, any permits and/or licenses (including
without limitation use permits, building permits and variances) that are
required by applicable laws to enable Lessee legally to conduct its business
from the Property. Lessee shall, at Lessee's expense, initiate and
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<PAGE>
diligently pursue obtaining each permit and/or license. Lessor shall execute any
applications and shall provide Lessee with such further assistance and
cooperation as Lessee may require in connection with applications for such
permits and licenses.
18. PARKING. Lessees rights under this Lease shall include the right to
use and manage all the parking facilities on the Property. Lessor hereby
represents and warrants that the parking facilities on the Property meet all
code and permitting requirements.
19. GENERAL PROVISIONS.
19.1 Lessor's Interests. Lessor represents and warrants to Lessee
------------------
that as of the Commencement Date, (a) Lessor owns and holds fee title in and to
the Buildings and the Property free and clear of all liens and encumbrances,
except the lien of the mortgage in favor of the Lessee; b) the Property
identified on Exhibit A contains the Buildings described on Exhibit B and (c)
--------- ---------
there are no encumbrances, liens, agreements, covenants in effect that would
limit Lessee's rights hereunder. The term "Lessor" as used herein shall mean
only the owners, at the time in question, of the fee title to the Property and
the Buildings. In the event of an assignment or transfer of this Lease by Lessor
for other than security purposes, Lessor shall cause its assignee or transferee
to assume the provisions of this Lease and Lessor shall deliver notice of the
proposed assignment or transfer and a copy of the proposed instrument of
transfer to Lessee within fifteen (15) business days after the date of transfer.
Lessor shall deliver to the Lessee a copy of the effective instrument of
transfer to its assignee or transferee as permitted by this Lease. Lessee shall
be entitled to continue to pay rent and give all notices to Lessor until Lessee
has received the foregoing from Lessor. Lessor shall deliver all funds in which
Lessee has an interest, including but not limited to Lessee's security deposit,
if any, to Lessor's purchaser or assignee. From and after a sale of the Property
and the Buildings, Lessor shall be released from all liability toward Lessee
arising from this Lease because of any act, occurrence or omission of Lessor's
successors occurring after the transfer of Lessor's interest in this Lease,
provided Lessor's purchaser or assignee expressly assumes Lessor's duties and
covenants under this Lease. Nothing herein shall be deemed to relieve Lessor of
any liability for its acts, omissions or obligations occurring or accruing up to
and including the date of such transfer. Lessor hereby agrees to insert, in any
agreement of sale and deed conveying the Property and Buildings or any portion
thereof to another person, a clause which states that such conveyance is subject
to this Lease.
19.2 Authority. Each of Lessor and Lessee hereby represents and
---------
warrants that this Lease has been duly authorized,
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executed and delivered by and on its behalf and constitutes such party's valid
and binding agreement in accordance with the terms hereof.
19.3 Severability. The invalidity of any provision of this Lease,
------------
as determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19.4 Time of Essence. Time is of the essence to the parties
---------------
executing this Lease.
19.5 Headings and WHEREAS Clauses. Article and section headings are
----------------------------
not a part hereof and shall not be used to interpret the meaning of this Lease
but the WHEREAS clauses at the beginning of this Lease are incorporated by
reference herein.
19.6 Incorporation of Prior Agreements Amendments. This Lease and
--------------------------------------------
the Exhibits hereto contains all agreements of the parties as of the date hereof
--------
with respect to any matter mentioned herein. No prior agreement, correspondence
or understanding pertaining to any such matter shall be effective to interpret
or modify the terms hereof. This Lease may be modified only in writing, signed
by the parties in interest, at the time of the modification. Lessor specifically
acknowledges that Lessee's employees at the Property do not have authority to
modify the Lease or to waive Lessee's rights hereunder.
19.7 Waivers. No waiver by Lessor or Lessee of any provision hereof
-------
shall be deemed a waiver of any other provision hereof or of any subsequent
breach by Lessor or Lessee of the same or any other provision. A party's consent
to or approval of any act shall not be deemed to render unnecessary obtaining
such party's consent to or approval of any subsequent act. No waiver shall be
effective unless it is in writing, executed on behalf of Lessor or Lessee by the
person to whom notices are to be addressed.
19.8 Recording. Lessor or Lessee may record a short form or
---------
memorandum of Lease at its own expense. At Lessee's request, the parties shall
execute a memorandum of Lease in recordable form giving notice of such
nonmonetary terms as Lessee may reasonably request, including Lessee's
exclusivity, right of first refusal and option rights. If Lessee exercises such
option, upon termination or expiration of the Lease, Lessee shall at its sole
expense, remove such recorded memorandum from title records.
19.9 Holding Over. If Lessee remains in possession of the Property
------------
and Buildings or any part thereof after the expiration of the Term, with or
without the consent of Lessor, such occupancy shall be a tenancy from month-to-
month at a rental in the amount of the Adjusted Rent payable in the last month
of the Term, plus all
20
<PAGE>
other charges payable hereunder appropriately prorated.
19.10 Cumulative Remedies. Except where otherwise expressly provided
-------------------
in this Lease, no remedy or election hereunder shall be deemed exclusive, but
shall, wherever possible, be cumulative with all other remedies at law or in
equity.
19.11 Binding Effect: Choice of Law. This Lease shall be binding
-----------------------------
upon and benefit the parties, their personal representatives, successors and
assigns. This Lease shall be governed by the laws of the Commonwealth of
Pennsylvania where the Property is located.
19.12 Subordination Nondisturbance and Attornment. This Lease shall
-------------------------------------------
be subordinate to all existing and future mortgages on the Property or the
Buildings and Lessee agrees to subordinate this Lease to any future mortgage of
deed of trust and to attorn to Lessor's successor following any foreclosure,
sale or transfer in lieu thereof, provided that the mortgagee, transferee,
purchaser, lessor or beneficiary ("Lessor's Successor") agrees in a written
instrument in form and substance satisfactory to Lessee that Lessee's use or
possession of the Property and the Buildings shall not be disturbed, nor shall
its obligations be enlarged or its rights be abridged hereunder by reason of any
such transaction. Notwithstanding any foreclosure or sale under any mortgage or
deed of trust (or transfer by deed in lieu thereof), this Lease shall remain in
full force and effect.
19.13 Lessor's Access. Lessor and Lessor's agents shall have the
---------------
right to enter the Property and the Buildings upon seventy-two (72) hours prior
written notice for the purpose of inspecting the same, showing the same to
prospective purchasers or lenders. Notwithstanding the foregoing, in the event
of an emergency requiring Lessor's entry into the Property and the Buildings,
Lessor may give Lessee shorter notice in any manner that is practicable under
the circumstances. Lessor may, at any time, place on or about the Property an
ordinary "For Sale" sign, and Lessor may at any time during the last three
hundred sixty five (365) days of the Term, place on or about the Property and
the Buildings an ordinary "For Lease" sign. Any such sign shall be no larger
than two feet by two feet (2' x 2').
19.14 Only Lessor/Lessee Relationship. Nothing contained in this
-------------------------------
Lease shall be deemed or construed by the parties hereto or by any third party
to create the relationship of principal and agent, partnership, joint venturer
or any association between Lessor and Lessee. Lessor and Lessee expressly agree
that neither the method of computation of rent nor any act of the parties hereto
shall be deemed to create any relationship between Lessor and Lessee other than
the relationship of Lessor and Lessee.
21
<PAGE>
19.15 Attorneys' Fees. Each party shall pay its own expenses
---------------
incident to this Lease and the transactions contemplated hereby including, but
not limited to, all fees of its counsel and accountants. If either party brings
an action or proceeding to enforce the terms hereof or declare rights hereunder,
the prevailing party in any such action, proceeding, trial or appeal, shall be
entitled to its reasonable attorneys' fees to be paid by the losing party as
fixed by the court.
19.16 Force Majeure. Notwithstanding any other provision hereof, in
-------------
the event that either party shall be delayed or hindered in or prevented from
the performance of any covenant, agreement, work, service, or other act required
under this Lease to be performed by such party, and such delay or hindrance is
due to causes entirely beyond its control such as riots, insurrections, martial
law, civil commotion, war, fire, flood, earthquake, or other casualty or acts of
God, the performance of such covenant, agreement, work, service, or other act
shall be excused for the period of delay and the time period for performance
shall be extended by the same number of days in the period of delay.
19.17 Confidentiality of Lease. Subject to the Lessee's rights under
------------------------
Section 19.8, from and after the date lease negotiations were entered into and
throughout the Term of this Lease the parties shall not disclose any of the
terms, covenants, conditions or agreements set forth in this Lease or any
amendments hereto, nor provide this Lease, any amendments hereto or any copies
of either of the same to any person including, without limitation, any brokers,
any other lessees in the Buildings or any affiliates, agents or employees of
such lessees or brokers except as set forth herein. Lessor and Lessee hereby
acknowledges that the disclosure of any of the terms, covenants, conditions and
agreements set forth in this Lease, or any amendment hereto, to any third party
would cause material damage to them and Lessor and Lessee agrees to indemnify,
save and hold each other see harmless from and against any and all damages
suffered by the other which are attributable to any disclosure by either of them
in violation of the terms of this provision. Notwithstanding the foregoing,
Lessor may disclose the terms of this Lease to any current or potential
mortgagee or purchaser of the Property who agrees to be bound by the terms of
this Section 19.17.
-------------
19.18 Brokers. Lessor and Lessee each represent and warrant to the
-------
other that they have not dealt, directly or indirectly, in connection with the
leasing of the Property or the Buildings, with any broker or person entitled to
claim a commission or leasing fee as to this Lease. Lessor and Lessee shall each
indemnify and hold harmless each other from any loss, liability, damage or
expense, including, without limitation, reasonable attorneys' fees and expenses
arising out of this transaction or in
22
<PAGE>
connection with a claim with respect to the leasing of the Property or Buildings
pursuant to this Lease made by any broker or other person with whom such party
has dealt.
19.19 Consents. Whenever the right of approval or consent is given
--------
to a party pursuant to this Lease, that party shall not unreasonably withhold,
condition or delay its consent unless this Lease expressly provides otherwise.
19.20 Merger of Bryn Mawr Bank Corporation. The Lessee shall
------------------------------------
continue to be bound by the provisions of this Lease notwithstanding that its
parent company, Bryn Mawr Bank Corporation, is merged or acquired by another
entity.
20. QUIET ENJOYMENT. Without limiting any rights Lessee may have by
statute or common law, Lessor covenants and agrees that, so long as this Lease
is in full force and effect, Lessee shall lawfully and quietly hold, occupy and
enjoy the Property and the Buildings during the Term of this Lease without
disturbance by Lessor or by any person having title paramount to Lessor's title
or by any person claiming through or under Lessor.
21. NOTICES. Whenever a provision is made under this Lease for any
demand, notice or declaration of any kind, or where it is deemed desirable or
necessary by either party to give or serve any such notice, demand or
declaration to the other party, it shall be in writing and served either
personally or sent by United States mail, certified, postage prepaid, addressed
at the addresses set forth below or at such address as either party may advise
the other from time to time.
To Lessor: Anthony J. Marcozzi and
The Real Viking , Inc.
Viking Management
41 Cricket Avenue
P.0. Box 647
Ardmore PA 19003
With a copy, which shall not constitute notice, to:
William P. O'Neill, Esquire
Six Bryn Mawr Avenue, Suite 204
Bryn Mawr PA 19010
To Lessee: The Bryn Mawr Trust Company
810 Lancaster Avenue
Bryn Mawr PA 19010
Attn: President
23
<PAGE>
With a copy, which shall not constitute notice, to:
Lawrence E. McAlee, Esquire
Monteverde, McAlee, Fitzpatrick, Tanker &
Hurd
1617 John F. Kennedy Boulevard
Suite 1500
Philadelphia, PA 19103-1815
Notices given hereunder shall be deemed to have been given on the date of
personal delivery (or the first business day thereafter if delivered on a
non-business day) or two (2) days after the date of mailing.
22. EXHIBITS. The following exhibits are attached to this Lease and by
this reference are incorporated herein:
Exhibit A - Legal Description of the Property
Exhibit B - Site Plan with Diagram of Buildings
Exhibit C - Method of Computing Adjusted Rent
Exhibit D - Special Form Insurance Endorsement
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
Lessor: A Joint Venture Lessee:
consisting of: The Bryn Mawr Trust Company
Anthony J. Marcozzi
/s/ Anthony J. Marcozzi By: /s/ S C Wasson
- ----------------------------------- -----------------------------------
Anthony J. Marcozzi Samuel C. Wasson, Jr.
Vice Chairman
The Real Viking, Inc.
By: /s/ Anthony J. Marcozzi
--------------------------------
Anthony J. Marcozzi
President
Attest: /s/ Anthony J. Marcozzi
----------------------------
Anthony J. Marcozzi
Secretary
24
<PAGE>
Lessor's Federal Tax Identification
Number:
----------------------------
COMMONWEALTH OF PENNSYLVANIA )
ss.
COUNTY OF MONTGOMERY )
On this 23rd day of Feb., 1999, before me, the undersigned, a Notary
---- ----
Public in and for the Commonwealth of Pennsylvania, duly commissioned and sworn,
personally appeared Anthony J. Marcozzi to me known as, or providing
satisfactory evidence that he is Anthony J. Marcozzi and that he executed the
foregoing instrument as his free and voluntary act for the uses and purposes
therein mentioned.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
/s/ Lea A. Amoroso
----------------------------
NOTARIAL SEAL NOTARY PUBLIC in and for the
LEA A. AMOROSO, Notary Public Commonwealth of Pennsylvania
Lower Merion Twp., Montgomery County
My Commission Expires Aug. 29, 2002 My commission expires
COMMONWEALTH OF PENNSYLVANIA )
ss.
COUNTY OF MONTGOMERY )
On this 23rd of Feb., 1999, before me, the undersigned, a Notary Public
---- ----
in and for the Commonwealth of Pennsylvania, duly commissioned and sworn,
personally appeared Anthony J. Marcozzi to me known as, or providing
satisfactory evidence that he is President and Secretary, respectively, of The
Real Viking, Inc. and that he being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing his name as said
officers of The Real Viking, Inc.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
/s/ Lea A. Amoroso
----------------------------
NOTARY PUBLIC in and for the
Commonwealth of Pennsylvania
My commission expires
NOTARIAL SEAL
LEA A. AMOROSO, Notary Public
Lower Merion Twp., Montgomery County
My Commission Expires Aug. 29, 2002
25
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
ss.
COUNTY OF MONTGOMERY )
On this 23rd day of Feb., 1999, before me, the undersigned, a Notary
---- ----
Public in and for the Commonwealth of Pennsylvania, duly commissioned and sworn,
personally appeared Samuel C. Wasson, Jr., to me known to be the Vice Chairman
--------------------- -------------
of THE BRYN MAWR TRUST COMPANY a Pennsylvania banking institution and
that the he being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing his name as said Vice Chairman of THE BRYN
-------------
MAWR TRUST COMPANY.
WITNESS my hand and official seal hereto affixed the day and year this
certificate above written.
/s/ Lea A. Amoroso
-----------------------------
NOTARY PUBLIC, in and for the
Commonwealth of Pennsylvania,
My commission expires
NOTARIAL SEAL
LEA A. AMOROSO, Notary Public
Lower Merion Twp., Montgomery County
My Commission Expires Aug. 29, 2002
26
<PAGE>
Exhibit A
---------
to the
MASTER LEASE
------------
LEGAL DESCRIPTION
OF THE PROPERTY
That certain tract of land situated in the County of Montgomery,
Commonwealth of Pennsylvania and more particularly described on the following
pages.
27
<PAGE>
Exhibit A
---------
to the
MASTER LEASE
------------
LEGAL DESCRIPTION
OF THE PROPERTY
That certain tract of land situated in the County of Montgomery,
Commonwealth of Pennsylvania and more particularly described on the following
pages.
ALL, THAT CERTAIN lot or piece of ground with the buildings and improvements
thereon erected, Situate in the Township of Lower Merion, County of Montgomery
and Commonwealth of Pennsylvania, being Lot #1, 2, 3, 4, 5 and 6 on Plan of
Lots, made for the heirs of Elizabeth C. Black and Jane Ann Lindsay, deceased by
Milton R. Yerkos, Civil Engineer, Bryn Mawr, Pennsylvania bounded and described
as follows, to wit:
BEGINNING at a point at the junction of the Southwest side line of Lancaster
Avenue with the Northwest aide line of Bryn Mawr Avenue; thence along the
Northwest side line of Bryn Mawr Avenue, South 38 degrees 55 minutes West 126
feet to a point; thence by Lot #11, North 50 degrees 53 minutes West 156.39 feet
to a corner of Lot #7, thence by Lot #7, North 39 degrees 7 minutes East 128 to
the Southwest side line of Lancaster Avenue; thence along said side line of
Lancaster Avenue South 50 degrees 53 minutes East 155.95 feet to the first
mentioned point and place of beginning.
ALSO ALL THAT CERTAIN lot or piece of ground with the buildings and improvements
thereon erected, Situate in the Township of Lower Merion, County of Montgomery
and Commonwealth of Pennsylvania, described in accordance with a Map of Property
of the Bryn Mawr Company made by M. R. and J. B. Yerkes, Civil Engineers and
surveyors, Bryn Mawr, Pennsylvania, dated May 19, 1955 and last revised March
7th, 1962 as follows, to wit:
BEGINNING at point on the Northwest side of Bryn Mawr Avenue (40 feet wide) at
the distance of 120 feet southwestwardly from the Southwest side of Lancaster
Avenue (50 feet wide); thence extending along the Northwest side of Bryn Mawr
Avenue, South 38 degrees 55 minutes West 140 feet to a point a corner; thence
along other land of Bryn Mawr Company of which this is a part, North 51 degrees
5 minutes West 128 feet to a point thence North 38 degrees 55 minutes East 61
feet to a point; thence North 51 degrees 5 minutes West 128.88 feet to a point
on the Southeast side of a private alley, called Harrison Alley, 10.13 feet in
width; thence along the South east side of said alley, North 39 degrees 11
minutes East 79.90 feet to a point; thence extending South 50 degrees 53 minutes
East 256.54 feet to the first mentioned point and place of beginning.
BEING Parcels Nos. 40-00-08944-00-7 & 40-00-08948-00-3.
BEING the same premises which Montgomery County Industrial Development
Authority by Deed dated 1-11-1983 and recorded in Montgomery county, in Deed
Book 4700 page 115 conveyed unto Bengt Griborn and Karin Griborn, his wife and
The Real Viking, Inc., a Pennsylvania Corporation, a joint Venture an undivided
one-half interest unto Bengt Griborn and Karin Griborn, his wife as tenants by
entireties and remaining one-half interest unto the Real viking, Inc.
AND the said Karin Griborn departed this life on 1-20-1987 whereby title to the
undivided one-half (1/2) interest in the above described premises vested in the
said Bengt Griborn by Operation of law.
<PAGE>
WHEREAS, Bengt Griborn died the 29th day of July, 1994 leaving a Will dated the
14th day of July, 1994 probated in the Office of the Register of Wills in and
for the County of Delaware by which testator appointed William P. O'Neill and
Thomas C. Thompson, Jr. Executors and wherein inter alia he authorized and
empowered his executors under article "Third A. 31" as follows:
"THIRD" DISPOSITIVE PROVISIONS A. I give to my friend and faithful employee
Anthony J. Marcozzi, the following: . . .3) my individual interest in premises
TWO and SIX SOUTH BRYN MAWR AVENUE, BRYN MAWR, PENNSYLVANIA 19010 . . . " Said
Will being No. 23-94-1744.
AND wherein he appointed William P. O'Neill and Thomas C. Thompson, Jr.,
Executors.
AND BEING an undivided one-half (1/2) interest in the same premises which
William P. O'Neill and Thomas C. Thompson, Jr., Executors under the Will of
Bengt Griborn by Deed dated 6-30-1995 and recorded in Montgomery county, in Deed
Book 5123 page 1586 conveyed unto Anthony J. Marcozzi, in fee.
<PAGE>
Exhibit B
---------
to the
MASTER LEASE
------------
SITE PLAN
with
DIAGRAM OF BUILDINGS
<PAGE>
Exhibit C
---------
to the
MASTER LEASE
------------
CPI ON WHICH ADJUSTED RENT IS BASED
<PAGE>
Page 1
U.S. Department Of Labor
Bureau of Labor Statistics
Washington, D.C. 20212
Consumer Price Index
All Urban Consumers - (CPI-U)
U.S. city average
All items
1982-84-100
<TABLE>
<CAPTION>
YEAR JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEP. OCT. NOV. DEC.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1913 9.8 9.8 9.8 9.8 9.7 9.8 9.9 9.9 10.0 10.0 10.1 10.0
1914 10.0 9.9 9.9 9.8 9.9 9.9 10.0 10.2 10.2 10.1 10.2 10.1
1915 10.1 10.0 9.9 10.0 10.1 10.1 10.1 10.1 10.1 10.2 10.3 10.3
1916 10.4 10.4 10.5 10.6 10.7 10.8 10.8 10.9 11.1 11.3 11.5 11.6
1917 11.7 12.0 12.0 12.6 12.8 13.0 12.8 13.0 13.3 13.5 13.5 13.7
1918 14.0 14.1 14.0 14.2 14.5 14.7 15.1 15.4 15.7 16.0 16.3 16.5
1919 16.5 16.2 16.4 16.7 16.9 16.9 17.4 17.7 17.8 18.1 18.5 18.9
1920 19.3 19.5 19.7 20.3 20.6 20.9 20.8 20.3 20.0 19.9 19.8 19.4
1921 19.0 16.4 10.3 18.1 17.7 17.6 17.7 17.7 17.5 17.5 17.4 17.3
1922 16.9 16.9 16.7 16.7 16.7 16.7 16.8 16.6 16.6 16.7 16.8 16.9
1923 16.8 16.8 16.8 16.9 16.9 17.0 17.2 17.1 17.2 17.3 17.3 17.3
1924 17.3 17.2 17.1 17.0 17.0 17.0 17.1 17.0 17.1 17.2 17.2 17.3
1925 17.3 17.2 17.3 17.2 17.3 17.5 17.7 17.7 17.7 17.7 18.0 17.9
1926 17.9 17.9 17.8 17.9 17.8 17.7 17.5 17.4 17.5 17.6 17.7 17.7
1927 17.5 17.4 17.3 17.3 17.4 17.6 17.3 17.2 17.3 17.4 17.3 17.3
1928 17.3 17.1 17.1 17.1 17.2 17.1 17.1 17.1 17.3 17.2 17.2 17.1
1929 17.1 17.1 17.0 16.9 17.0 17.1 17.3 17.3 17.3 17.3 17.3 17.2
1930 17.1 17.0 16.9 17.0 16.9 16.8 16.6 16.5 16.6 16.5 16.4 16.1
1931 15.9 15.7 15.6 15.5 15.3 15.1 15.1 15.1 15.0 14.9 14.7 14.6
1932 14.3 14.1 14.0 13.9 13.7 13.6 13.6 13.5 13.4 13.3 13.2 13.1
1933 12.9 12.7 12.6 12.6 12.6 12.7 13.1 13.2 13.2 13.2 13.2 13.2
<CAPTION>
SEMIANNUAL
PERCENT CHANGE
1ST 2ND
YEAR HALF HALF AVG. DEC-DEC AVG-AVG
<S> <C> <C> <C> <C> <C>
1913 9.9
1914 10.0 1.0 1.0
1915 10.1 2.0 1.0
1916 10.9 12.6 7.9
1917 12.8 18.1 17.4
1918 15.1 20.4 18.0
1919 17.3 14.5 14.6
1920 20.0 2.6 15.6
1921 17.9 -10.8 -10.5
1922 16.8 -2.3 -6.1
1923 17.1 2.4 1.8
1924 17.1 0.0 0.0
1925 17.5 3.5 2.3
1926 17.7 -1.1 1.1
1927 17.4 -2.3 -1.7
1928 17.1 -1.2 -1.7
1929 17.1 0.6 0.0
1930 16.7 -6.4 -2.3
1931 15.2 -9.3 -9.0
1932 13.7 -10.3 -9.9
1933 13.0 0.8 -5.1
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1934 13.2 13.3 13.3 13.3 13.3 13.4 13.4 13.4 13.6 13.5 13.5 13.4
1935 13.6 13.7 13.7 13.8 13.8 13.7 13.7 13.7 13.7 13.7 13.8 13.8
1936 13.0 13.8 13.7 13.7 13.7 13.8 13.9 14.0 14.0 14.0 14.0 14.0
1937 14.1 14.1 14.2 14.3 14.4 14.4 14.5 14.5 14.6 14.6 14.5 14.4
1938 14.2 14.1 14.1 14.2 14.1 14.1 14.1 14.1 14.1 14.0 14.0 14.0
1939 14.0 13.9 13.9 13.8 13.8 13.8 13.8 13.8 14.1 14.0 14.0 14.0
1940 13.9 14.0 14.0 14.0 14.0 14.1 14.0 14.0 14.0 14.0 14.0 14.1
1941 14.1 14.1 14.2 14.3 14.4 14.7 14.7 14.9 15.1 15.3 15.4 15.5
1942 15.7 15.8 16.0 16.1 16.3 16.3 16.4 16.5 16.5 16.7 16.8 16.9
1943 16.9 16.9 17.2 17.4 17.5 17.5 17.4 17.3 17.4 17.4 17.4 17.4
1944 17.4 17.4 17.4 17.5 17.5 17.6 17.7 17.7 17.7 17.7 17.7 17.8
1945 17.8 17.8 17.8 17.8 17.9 18.1 18.1 18.1 18.1 18.1 18.1 18.2
1946 18.2 18.1 18.3 18.4 18.5 18.7 19.8 20.2 20.4 20.8 21.3 21.5
1947 21.5 21.5 21.9 21.9 21.9 22.0 22.2 22.5 23.0 23.0 23.1 23.4
1948 23.7 23.5 23.4 23.8 23.9 24.1 24.4 24.5 24.5 24.4 24.2 24.1
1949 24.0 23.8 23.8 23.9 23.8 23.9 23.7 23.8 23.9 23.7 23.8 23.6
1950 23.5 23.5 23.6 23.6 23.7 23.8 24.1 24.3 24.4 24.6 24.7 25.0
1951 25.4 25.7 25.8 25.8 25.9 25.9 25.9 25.9 26.1 26.2 26.4 26.5
1952 26.5 26.3 26.3 26.4 26.4 26.5 26.7 26.7 26.7 26.7 26.7 26.7
1953 26.6 26.5 26.6 26.6 26.7 26.8 26.8 26.9 26.9 26.0 26.9 26.9
1954 26.9 26.9 26.9 26.8 26.9 26.9 26.9 26.9 26.8 26.8 26.8 26.7
1955 26.7 26.7 26.7 26.7 26.7 26.7 26.8 26.8 26.9 26.9 26.9 26.8
1956 26.8 26.8 26.8 26.9 27.0 27.2 27.4 27.3 27.4 27.5 27.5 27.6
1957 27.6 27.7 27.8 27.9 28.0 28.1 28.3 28.3 28.3 28.3 28.4 28.4
1958 28.6 28.6 28.8 28.9 28.9 28.9 29.0 28.9 28.9 28.9 29.0 28.9
1959 29.0 28.9 28.9 29.0 29.0 29.1 29.2 29.2 29.3 29.4 29.4 29.4
1960 29.3 29.4 29.4 29.5 29.5 29.6 29.6 29.6 29.6 29.8 29.8 29.8
1961 29.8 29.8 29.8 29.8 29.8 29.8 30.0 29.9 30.0 30.0 30.0 30.0
1962 30.0 30.1 30.1 30.2 30.2 30.2 30.3 30.3 30.4 30.4 30.4 30.4
1963 30.4 30.4 30.5 30.5 30.5 30.6 30.7 30.7 30.7 30.8 30.8 30.9
1964 30.9 30.9 30.9 30.9 30.9 31.0 31.1 31.0 31.1 31.1 31.2 31.2
1965 31.2 31.2 31.3 31.4 31.4 31.6 31.6 31.6 31.6 31.7 31.7 31.8
1966 31.8 32.0 32.1 32.3 32.3 32.4 32.5 32.7 32.7 32.9 32.9 32.9
1967 32.9 32.9 33.0 33.1 33.2 33.3 33.4 33.5 33.6 33.7 33.8 33.9
1968 34.1 34.2 34.3 34.4 34.5 34.7 34.9 35.0 35.1 35.3 35.4 35.5
1969 35.6 35.8 36.1 36.3 36.4 36.6 36.8 37.0 37.1 37.3 37.5 37.7
1970 37.8 38.0 38.2 38.5 38.6 38.8 39.0 39.0 39.2 39.4 39.6 39.8
1971 39.8 39.9 40.0 40.1 40.3 40.6 40.7 40.8 40.8 40.9 40.9 41.1
1972 41.1 41.3 41.4 41.5 41.6 41.7 41.9 42.0 42.1 42.3 42.4 42.5
<CAPTION>
<S> <C> <C> <C>
1934 13.4 1.5 3.1
1935 13.7 3.0 2.2
1936 13.9 1.4 1.5
1937 14.4 2.9 3.6
1938 14.1 -2.8 -2.1
1939 13.9 0.0 -1.4
1940 14.0 0.7 0.7
1941 14.7 9.9 5.0
1942 16.3 9.0 10.9
1943 17.3 3.0 6.1
1944 17.6 2.3 1.7
1945 18.0 2.2 2.3
1946 19.5 18.1 8.3
1947 22.3 8.8 14.4
1948 24.1 3.0 8.1
1949 23.8 -2.1 -1.2
1950 24.1 5.9 1.3
1951 26.0 6.0 7.9
1952 26.5 0.8 1.9
1953 26.7 0.7 0.8
1954 26.9 -0.7 0.7
1955 26.8 0.4 -0.4
1956 27.2 3.0 1.5
1957 28.1 2.9 3.3
1958 28.9 1.8 2.8
1959 29.1 1.7 0.7
1960 29.6 1.4 1.7
1961 29.9 0.7 1.0
1962 30.2 1.3 1.0
1963 30.6 1.6 1.3
1964 31.0 1.0 1.3
1965 31.5 1.9 1.6
1966 32.4 3.5 2.9
1967 33.4 3.0 3.1
1968 34.8 4.7 4.2
1969 36.7 6.2 5.5
1970 38.8 5.6 5.7
1971 40.5 3.3 4.4
1972 41.8 3.4 3.2
</TABLE>
<PAGE>
Page 3 of 3
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1973 42.6 42.9 43.3 43.6 43.9 44.2 44.3 45.1 45.2 45.6 45.9 46.2 44.4 8.7 6.2
1974 46.6 47.2 47.8 48.0 48.6 49.0 49.4 50.0 50.6 51.1 51.5 51.9 49.3 12.3 11.0
1975 52.1 52.5 52.7 52.9 53.2 53.6 54.2 54.3 54.6 54.9 55.3 55.5 53.0 6.9 9.1
1976 55.6 55.8 55.9 56.1 56.5 56.8 57.1 57.4 57.6 57.9 58.0 58.2 56.9 4.9 5.8
1977 58.5 59.1 59.5 60.0 60.3 60.7 61.0 61.2 61.4 61.6 61.9 62.1 60.6 6.7 6.5
1978 62.5 62.9 63.4 63.9 64.5 65.2 65.7 66.0 66.5 67.1 67.4 67.7 65.2 9.0 7.6
1979 68.3 69.1 69.8 70.6 71.5 72.3 73.1 73.8 74.6 75.2 75.9 76.7 72.6 13.3 11.3
1980 77.8 78.9 80.1 81.0 81.8 82.7 82.7 83.3 84.0 84.8 85.5 86.3 82.4 12.5 13.5
1981 87.0 87.9 88.5 89.1 89.8 90.6 91.6 92.3 93.2 93.4 93.7 94.0 90.9 8.9 10.3
1982 94.3 94.6 94.5 94.9 95.8 97.0 97.5 97.7 97.9 98.2 98.0 97.6 96.5 3.8 6.2
1983 97.8 97.9 97.9 98.6 99.2 99.5 99.9 100.2 100.7 101.0 101.2 101.3 99.6 3.8 3.2
1984 101.9 102.4 102.6 103.1 103.4 103.7 104.1 104.5 105.0 105.3 105.3 105.9 102.9 104.9 103.9 3.9 4.3
1985 105.5 106.0 106.4 106.9 107.3 107.6 107.8 108.0 108.3 108.7 109.0 109.3 106.6 108.5 107.6 3.8 3.6
1986 109.6 109.3 108.8 108.6 108.9 109.5 109.5 109.7 110.2 110.3 110.4 110.5 109.1 110.1 109.6 1.1 1.9
1987 111.2 111.6 112.1 112.7 113.1 113.5 113.8 114.4 115.0 115.3 115.4 115.4 112.4 114.9 113.6 4.4 3.6
1988 115.7 116.0 116.5 117.1 117.5 118.0 118.5 119.0 119.8 120.2 120.3 120.5 116.8 119.7 118.3 4.4 4.1
1989 121.1 121.6 122.3 123.1 123.8 124.1 124.4 124.6 125.0 125.6 125.9 126.1 122.7 125.3 124.0 4.6 4.8
1990 127.4 128.0 128.7 128.9 129.2 129.9 130.4 131.6 132.7 133.5 133.8 133.8 128.7 132.6 130.7 6.1 5.4
1991 134.6 134.8 135.0 135.2 135.6 136.0 136.2 136.6 137.2 137.4 137.8 137.9 135.2 137.2 136.2 3.1 4.2
1992 138.1 138.6 139.3 139.5 139.7 140.2 140.5 140.9 141.3 141.8 142.0 141.9 139.2 141.4 140.3 2.9 3.0
1993 142.6 143.1 143.6 144.0 144.2 144.4 144.4 144.8 145.1 145.7 145.8 145.8 143.7 145.3 144.5 2.7 3.0
1994 146.2 146.7 147.2 147.4 147.5 148.0 148.4 149.4 149.4 149.5 149.7 149.7 147.2 149.3 148.2 2.7 2.6
1995 150.3 150.9 151.4 151.9 152.2 152.5 152.5 152.9 153.2 153.7 153.6 153.5 151.5 153.2 152.4 2.5 2.8
1996 154.4 154.9 155.7 156.3 156.6 156.7 157.0 157.3 157.8 158.3 158.6 158.6 155.8 157.9 156.9 3.3 3.0
1997 159.1 159.6 160.0 160.2 160.1 160.3 160.5 160.8 161.2 161.6 161.5 161.3 159.9 161.2 160.5 1.7 2.3
1998 161.6 161.9 162.2 162.5 162.8 163.0 163.2 163.4 163.6 164.0 164.0 163.9 162.3 163.0 1.6 1.6
</TABLE>
<PAGE>
Exhibit D
---------
to the
MASTER LEASE
------------
SPECIAL FORM INSURANCE ENDORSEMENT
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF ACORD] DATE(MM/DD/YY)
2/22/99
- --------------------------------------------------------------------------------
THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE
AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY.
- --------------------------------------------------------------------------------
PRODUCER PHONE COMPANY
(A/C, No. Ext): (610)902-5000 ATLANTIC MUTUAL
-----------------------------
THE SIMKISS AGENCY, INC.
150 RADNOR-CHESTER ROAD
ST. DAVIDS, PA 19087-8710
- --------------------------------------------
CODE: SUB CODE:
- --------------------------------------------
AGENCY
CUSTOMER ID. #:
- --------------------------------------------
INSURED LOAN NUMBER POLICY NUMBER
496-30-10-24
BRYN MAWR TRUST COMPANY --------------------------------
801 LANCASTER AVENUE EFFECTIVE DATE EXPIRATION DATE
BRYN MAWR PA 19010 02/23/99 07/08/99
[_] CONTINUED UNTIL
TERMINATED IF CHECKED
--------------------------------
THIS REPLACES PRIOR EVIDENCE
DATED:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCATION/DESCRIPTION
#2 & #6 BRYN MAWR AVENUE
BRYN MAWR, PA 19010
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COVERAGE/PERILS/ FORMS AMOUNT OF INSURANCE DEDUCTIBLE
- --------------------------------------------------------------------------------
BLANKET BUILDING SPECIAL PERILS/AGREED
VALUE REPLACEMENT COST VALUATION/INCL.
FLOOD & QUAKE, BOILER AND MACHINERY/DEBRIS
REMOVAL/ ORDINANCE & LAW/BACK UP OF
SEWER DRAINS #2 BRYN MAWR AVE. &
#6 BRYN MAWR AVE. $2,300,000 $5,000
BLANKET RENTAL VALUE COVERAGE/ACTUAL LOSS
SUSTAINED #2 BRYN MAWR AVE. & #6 BRYN
MAWR AVE. 315,000 N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANTHONY J. MARCOZZI AND THE REAL VIKING, INC. ARE ADDITIONAL NAMED INSURED, LOSS
PAYEE WITH RESPECT TO BUILDINGS #2 AND #6 BRYN MAWR AVE., BRYN MAWR, PA 19010
ATIMA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH
POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE
ADDITIONAL INTEREST IDENTIFIED BELOW 30 DAYS WRITTEN NOTICES, AND WILL SEND
NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN
ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME AND ADDRESS [_]MORTGAGEE [X] ADDITIONAL INSURED
[x]LOSS PAYEE [_]
ANTHONY J. MARCOZZI ------------------------------------------
THE REAL VIKING INC. LOAN #
41 CRICKET AVE
PO BOX 647 ------------------------------------------
ARDMORE PA 19003 AUTHORIZED REPRESENTATIVE
/s/ William Fo'brie
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF ACORD] DATE (MM/DD/YY)
2/22/99
- --------------------------------------------------------------------------------
PRODUCER
THE SIMKISS AGENCY, INC.
150 RADNOR CHESTER ROAD
ST. DAVIDS, PA 19087-8710
- --------------------------------------------------------------------------------
INSURED THE BRYN MAWR TRUST COMPANY
801 LANCASTER AVENUE
BRYN MAWR, PA 19010
- --------------------------------------------------------------------------------
THIS CERTIFICATE IS ISSUED AS A MATER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE
COVERAGE AFFORDED BY THE POLICIES BELOW.
- --------------------------------------------------------------------------------
COMPANIES AFFORDING COVERAGE
- --------------------------------------------------------------------------------
COMPANY
A ATLANTIC MUTUAL INSURANCE COMPANY
- --------------------------------------------------------------------------------
COMPANY
B
- --------------------------------------------------------------------------------
COMPANY
C
- --------------------------------------------------------------------------------
COMPANY
D
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY
REQUIREMENT TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THE CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
CO POLICY EFFECTIVE POLICY EFFECTIVE
LTR TYPE OF INSURANCE POLICY NUMBER DATE(MM/DD/YY) DATE(MM/DD/YY) LIMITS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GENERAL LIABILITY 498301024* 7/8/98 7/8/99 GENERAL AGGREGATE $ 1,000,000
A [x] COMMERCIAL GENERAL LIABILITY PRODUCTS.COMP/OP AGG $ 1,000,000
[_][_]CLAIMS MADE [x]OCCUR PERSONAL & ADY INJURY $ 1,000,000
[_] OWNERS & CONTRACTORS PRO EACH OCCURENCE $ 1,000,000
[_] ________________________ FIRE DAMAGE
(Any one fire) $ 50,000
[_] MED EXP
(Any one person) $ 10,000
- -------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY 498301024 7/8/98 7/8/99
a [x] ANY AUTO COMBINED SINGLE LIMIT $ 1,000,000
[_] ALL OWNED AUTOS BODILY INJURY $
[_] SCHEDULED AUTOS (Per Person)
[_] HIRED AUTOS BODILY INJURY $
[_] NON-OWNED AUTOS (Per accident)
[_] ______________ PROPERTY DAMAGE $
[_]
- -------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA
ACCIDENT $
[_]ANY AUTO OTHER THAN AUTO ONLY
[_]________________ EACH ACCIDENT $
[_] AGGREGATE $
- -------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY 496301024* 7/6/98 7/8/99 EACH OCCURRENCE $ 10,000,000
A [X] UMBRELLA FORM AGGREGATE $ 10,000,000
[_] OTHER THAN UMBRELLA FORM $
- -------------------------------------------------------------------------------------------------------------------------------
WORKER'S COMPENSATION AND 401711058 7/8/98 7/8/99 WIC STATUTORY OTHER
EMPLOYERS' LIABILITY LIMITS
A EL EACH ACCIDENT $ 100,000
THE PROPRIETOR/ [_] INCL EL INCREASE-POLICY
PARTNERS/EXECUTIVE LIMIT $ 500,000
OFFICERS ARE [_] EXCL. EL DECEASE-EA
EMPLOYEE $ 100,000
- -------------------------------------------------------------------------------------------------------------------------------
OTHER
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
"ANTHONY J. MARCOZZI AND THE REAL VIKING, INC. ARE ADDITIONAL INSURED/LESSOR
ON A PRIMARY BASIS WITH RESPECT TO THESE POLICIES FOR PREMISES AT #2 AND #6
BRYN MAWR AVENUE, BRYN MAWR, PA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANTHONY J. MARCOZZI
THE REAL VIKING INC.
41 CRICKET AVE
PO BOX 847
ARDMORE PA 19003
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES ARE CANCELLED BEFORE THE EXPIRATION
DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE
TO THE CERTIFICATE HOLDER NAMED TO THE LEFT. BUT FAILURE TO MAIL SUCH NOTICE
SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENT
OR REPRESENTATIVES.
- --------------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ William P. O'Neill
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Bryn Mawr Bank Corporation
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------
Five-Year
Compound
For the year 1999 1998* Change Growth Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
Net interest income ................... $ 22,460 $ 20,106 12% 8%
Other income .......................... 18,610 15,076 23 17
Other expenses ........................ 28,980 24,695 17 11
Net income ............................ 7,961 6,857 16 14
At year end
- ----------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS
Total assets .......................... $436,820 $391,840 11% 6%
Total net loans ....................... 334,539 277,085 21 8
Total deposits ........................ 371,068 342,357 8 4
Shareholders' equity .................. 46,719 42,221 11 11
Per common share
- ----------------------------------------------------------------------------------------------
Earnings per common share ............. $ 1.83 $ 1.58 16% 15%
Earnings per common
share-assuming dilution ............ $ 1.75 $ 1.51 16 14
Dividends declared .................... 0.60 0.465 29 30
Book value ............................ 10.74 9.81 9 12
Closing price ......................... 23.88 27.25 (12) 25
Selected ratios
- ----------------------------------------------------------------------------------------------
Return on average assets .............. 1.99% 1.91% -- --
Return on average
shareholders' equity ............... 17.97% 17.06% -- --
</TABLE>
*Reclassified for comparitive purposes.
<PAGE>
1999 Annual Report 1
Dear Shareholders:
The Corporation's financial performance this year was solid; net income
increased 16%. Our results show very well, especially against traditional banks.
What we have accomplished in the way of expanding our revenue streams separates
us from all but a few banking institutions. Revenue from non-interest related
banking services, a key indicator of our Bank's development as a diverse
financial service operation, amounted to $18.6 million this past year. Net
interest income, traditional banking profit, was $22.5 million. So, 45% of our
revenue is now fee-based. We've grown revenues from these fees at a 15% average
annual rate over the last ten years.
And, though we've grown, we continue to possess a unique combination of three
elements which separate us from every other banking institution I know of: our
people, our size, and the breadth of our services lines.
From left:
Robert L. Stevens
Diane C. McDonald
Samuel C. Wasson, Jr.
[PHOTO]
We've a wide range of financial services in place: financial planning,
investment management, personal financial accounting, insurance, tax advice, and
foundation management, all in addition to traditional banking. Assembling the
services has not been difficult; meshing them into cohesive offerings,
understandable to our customers, has proved more challenging than I imagined.
We've still much to do to bring the service offerings we have to our clients in
a seamless, thoughtful way.
The year's activities were dominated by two controlling factors. First, was the
addition of two new subsidiaries: Joseph W. Roskos & Co., a personal financial
accounting and tax firm which is the area's premier Family Office service
provider; and CDC Capital Management, Inc., a registered investment advisory
firm. The second factor was the departure of several in our Investment
Management and Trust Division.
The departure of these employees, and the loss of business that resulted,
coincided with the shift in culture which I initiated in the fall of 1998, and
the commitment I've asked from everyone. I intend to create an organization
fully aligned with client-oriented service and professional excellence, one
which encourages open, candid communication, and trustworthy relationships, both
within the Corporation and with clients.
<PAGE>
2 Bryn Mawr Bank Corporation
To accomplish our organizational development, I have engaged a professional
consulting firm, which we have been working with for over a year, to create a
"Learning Organization." Happily, I can see results, both within me, and in
those around me, but a bumpy road it is!
Joseph W. Roskos, who joined the Corporation in January as CEO of Joseph W.
Roskos & Co., our Family Office, has responsibility for our Trust Division and
has added five seasoned professionals to our Trust Administration staff, the
backbone of the division. Three investment professionals have been hired in
1999. And to strengthen the Investment Management services we offer--through
Investment Counsellors of Bryn Mawr, the Trust Division, CDC Capital Management,
Inc., and Bryn Mawr Brokerage Company, Inc.--at year end, I appointed Thomas M.
Petro to lead that effort. Tom came to the Bank ten years ago and has proven to
be an excellent manager.
The quality of our investment management services has remained consistent. We
have been a large-cap growth style manager since 1988, and have continued to
provide a fine investment performance, as measured by our flagship fund offering
which advanced 25% this year, exceeding the Standard & Poor 500 average. We
have, over many years, delivered consistently fine investment performance.
So, we had an excellent year, and, more importantly, we're making headway
despite our growing pains. I'll keep on pressing to have us develop, learn, and
grow. I've been CEO for twenty years, and an employee for forty. My goal is to
see that Bryn Mawr Bank Corporation becomes one of the country's premier
providers of personal financial service to wealthy families. Members of the
Board and I are working on my succession to insure a smooth transition when the
time is right.
Finally, let me attempt, now, to put what we do for clients in understandable
order for you. We help create, manage, protect, and transfer wealth for our
clients.
Creation
- - investment advice
- - savings
- - loans (business/personal)
- - 401(k) management
Management
- - investment management
- - family office (bill paying/tax returns)
- - cash management (personal/business)
- - Member Banking (highly personalized routine banking service)
- - business banking
Protection
- - tax advice/preparation
- - insurance (property/casualty and life)
- - annuities
- - custody services
Transfer
- - planning
- - estate administration
- - trust administration
- - foundation management
There's much in the financial section to show the year's results, so please read
on to know more about our financial performance.
I welcome your inquiry, am happy to respond to any question you have, and will
do my very best to continue to keep Bryn Mawr Bank Corporation worthy of your
support.
Sincerely,
/s/Robert L. Stevens
Robert L. Stevens
Chairman
February 25, 2000
<PAGE>
1999 ANNUAL REPORT 3
The Year in Review
As we begin the new millennium, The Bryn Mawr Trust Company is a very different
institution from the neighborhood bank that was established over a century ago.
Now, the principal subsidiary of Bryn Mawr Bank Corporation, it has evolved from
a traditional bank into a diversified financial service provider. While
continuing to maintain the high quality of our traditional competencies, we
recognize that to compete successfully, we must respond fully to the more
sophisticated and complex financial needs of our constituency.
[PHOTO]
From left:
Radclyffe F. Thompson
Joseph H. Bachtiger
Randy G. Thomas
Lisa M. Brinton
Joseph W. Roskos
<PAGE>
4 Bryn Mawr Bank Corporation
Beginning in 1996, the Corporation began to expand upon its traditional banking
and trust business by offering diverse financial services including: individual
investment management, investment advisory services, brokerage, tax counseling,
insurance, financial planning, and expanded family office, or personal
accounting services.
A number of factors accelerated the shift in direction from remaining a
community bank to becoming a full financial service provider. The major
motivating factor was, however, the inherently slow growth of traditional
banking business, which demanded that we expand revenue streams to include more
fee-based products and services.
OUR FRANCHISE
- --------------------------------------------------------------------------------
We are fortunate to be located in the heart of the fifth largest wealth market
in the nation. We have an established franchise concentrated in the affluent
Philadelphia suburban area known as the "Main Line." We are in a prime market to
take advantage of the opportunity that is being created by dramatic demographic
changes, such as the aging of the baby boomers, the new wealth created by a
strong stock market, and the transfer of wealth from generation to generation.
[GRAPH]
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
BASIC E P S $1.83 $1.58 $1.40 $1.38 $1.06
- -----------
TRUST ASSETS
- ------------
Discretionary 1,128,000 1,270,000 949,753 719,384 573,990
Non-Discretionary 759,000 831,000 716,719 510,542 465,804
--------- --------- --------- --------- ---------
Total 1,887,000 2,101,000 1,666,472 1,229,926 1,039,794
TOTAL REVENUE STREAMS
- ---------------------
Trust Fees 9,784 9,272 7,698 5,936 5,496
Net Interest Income 22,460 20,106 18,031 17,847 16,371
Other Non-Interest Income 8,826 5,804 4,388 4,487 3,701
--------- --------- --------- --------- ---------
Total 41,070 35,182 30,117 28,270 25,568
LOANS SERVICED FOR OTHERS 306,147 290,675 255,571 224,366 255,571
- -------------------------
TOTAL ASSETS MANAGED
- --------------------
Corporation' Balance Sheet 436,820 391,840 374,210 345,747 354,956
Loans Sold, Serviced for Others 306,147 290,675 255,571 244,366 224,430
Fidelity Funds 100,372 43,007 23,826 13,217 3,933
Trust Assets 1,887,000 2,101,000 1,666,472 1,229,926 1,039,794
C D C Assets 295,466 0 0 0 0
--------- --------- --------- --------- ---------
Total 3,025,805 2,826,522 2,320,079 1,813,256 1,623,113
COMMON STOCK
- ------------
Market Value $23.88 $27.25 $25.50 $13.63 $13.00
Book Value $10.74 $ 9.81 $ 9.00 $ 8.14 $ 7.29
SELECTED AVERAGE BALANCES
- -------------------------
Total Corporation Assets 399,061 359,860 351,437 336,719 334,391
Total Average Deposits 341,603 314,061 308,620 295,541 298,726
Transaction Accounts 185,867 168,090 150,034 143,583 134,653
</TABLE>
<PAGE>
1999 ANNUAL REPORT 5
We find that "bigger is better" is no longer the popular perception when it
comes to the financial service industry. There is a place for a small financial
institution that can provide first quality financial products and services in a
warm personal way. Our ability to connect clients to related services, and our
"client first" approach has been well received. And while we continue to focus
on personal attention, we have added convenient services that enable our clients
to do business with us on their own terms--in person, by phone, or on-line.
WEALTH MANAGEMENT
- --------------------------------------------------------------------------------
Through the acquisition of the Joseph W. Roskos Co., we now have the pre-eminent
family business office in the Mid-Atlantic region. Our Family Office defines our
approach to delivering high quality, personalized financial services to wealthy
individuals and their families. We simplify the complexities associated with
wealth by serving as an outsourced accounting department for a family - doing
for them the work that would typically be performed by the accounting department
of a small business. This includes functions like collecting income from various
sources, paying bills, keeping payroll records, preparing monthly income and
expense summaries, tax planning and return preparation, insurance reviews, will
and estate reviews and other functions.
[PHOTO]
From left:
Norman S. MacQueen,III
Nancy L. Gross
J. Michael Devine
Jere E. Estes
William A McNeal
Thomas M. Petro
F. Cristopher Campbell, III
William A. Keefe
John M. Grib
Andrea Pilch
Eric D. Thorne
Peter T. Maher, Jr.
<PAGE>
6 Bryn Mawr Bank Corporation
Family Office services can stand alone, or can be used by clients in concert
with our well-established trust and investment services. In 1999, we acquired
CDC Capital Management to expand our investment capabilities. Through CDC our
clients have access to investment talent from a global network of institutional
money managers representing a broad range of investment styles. This complements
our large cap growth style of investing client assets that has returned strong,
consistent, reliable investment performance. Our Qualified Equity Fund (QEF)
outperformed the S&P 500 again in 1999 with a total return of 24.93%. We use the
same large cap investment discipline in selecting equities for individual client
portfolios as we do for our QEF.
We have expanded our services for individuals to include securities brokerage,
tax planning, estate planning, foundation management and insurance. Insurance is
a key product offering in helping clients transfer wealth and protect their
assets.
Business Advisory
[PHOTO]
<PAGE>
1999 ANNUAL REPORT 7
FOCUS ON BUSINESS
- --------------------------------------------------------------------------------
In the past decade, we increased the depth of our commercial banking activities
by adding strong cash management capabilities and employee benefits services,
such as 401k plan administration and pension plan management. We have built upon
this core group of commercial services to include new services: employee group
health and welfare plan administration, executive compensation and benefit plan
design consulting services, tax planning services and specialty insurance
services like key-man insurance, error and omission and director and officer
liability insurance. Our approach is to help business clients measure and manage
insurable risks.
Despite the industry-wide slow growth rate experienced in the commercial line of
business, our business banking continues to grow. Our commercial loan portfolio
grew 34% in 1999. As we look ahead, we expect to see more capital markets
activity by helping business clients use such well established risk management
techniques as interest rate swaps and other hedging products.
- --------------------------------------------------------------------------------
[GRAPH]
Total Assets
IN MILLIONS OF DOLLARS 1999 [PLOT POINTS TO COME] Corporation's
1998 Balance Sheet
1997 Loans Sold
1996 Fidelity Funds
1995 Trust Assets
CDC Assets
Trust Assets
IN MILLIONS OF DOLLARS 1999 [PLOT POINTS TO COME]
1998
1997
1996 Discretionary
1995 Non-Discretionary
<PAGE>
8 Bryn Mawr Bank Corporation
CONSUMER BANKING
- --------------------------------------------------------------------------------
Our banking business continues to grow. During 1999, we experienced strong
growth in demand and NOW accounts. We maintain six full-service branches. At the
start of the year 2000, we opened our sixth limited service office in affluent
retirement communities. This one is at White Horse Village in Newtown Square.
The retirement community offices continue to be a good source for banking,
trust, and investment management business.
UPGRADING FACILITIES
- --------------------------------------------------------------------------------
Our goal is to create facilities dedicated solely to our work and interaction
with our clients. We want to simplify the interaction of clients with our
experts, providing them easy access to all of our products, services and
professional staff. Major renovations are planned for the main building, which
currently houses a mix of client contact, and staff support personnel. Our staff
support personnel will be relocated to Buildings Two and Six South Bryn Mawr
Avenue, just across the street from our main office in Bryn Mawr. The
renovations to create a center for our customer-focused activities are expected
to take two years and begin in June of 2000.
Community Banking
[PHOTO] From left:
Susan J. Healy
Susan B. George
Richard J. Fuchs
Thomas J. Giamoni
Joseph M. Tyson, Jr.
Sandra H. Evans
<PAGE>
1999 ANNUAL REPORT 9
FINANCIAL REFORM BILL
- --------------------------------------------------------------------------------
In November the Gramm-Leach-Bliley Act was officially signed. Breaking down the
Depression-era legal barriers, banks, investment firms and insurance companies
can now merge, creating greater choice and convenience for the consumer.
Customer confidentiality in this new de-regulated era raises privacy issues.
Under the new law, financial companies must disclose to their clients, their
procedures for protecting client privacy. We have drafted privacy policies for
all of our entities, with a special policy drafted to specifically address the
insurance business. We remain committed to the highest standards of protecting
client confidentiality.
COMMUNITY INVOLVEMENT
- --------------------------------------------------------------------------------
Ever since its establishment in 1889, Bryn Mawr Trust has played a leading role
in support of community activities including: education, health, senior citizen
concerns, cultural events, civic duties, business organizations, and the general
well being of the individuals and businesses within those areas where it
transacts business. The Bank intends to continue its commitment to the community
both financially, and by providing leadership to maximize the effectiveness of
these efforts.
- --------------------------------------------------------------------------------
[GRAPH]
Total Revenue Streams
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TO COME]
1996 Trust Fees
1995 Net Interest Income
Other Non-Interest
Income
Total Corporation
Average Assets
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TO COME]
1996
1995
<PAGE>
10 Bryn Mawr Bank Corporation
What's Ahead?
In the ever-changing financial landscape, a myriad of financial service
providers stand ready to satisfy almost any financial need a client could face.
Yet, we firmly believe that there is a significant place for Bryn Mawr Bank
Corporation in the crowded financial service marketplace. We believe that
personal care, delivered warmly by competent and trustworthy experts will be in
demand well into this new century. So, based on that premise, we continue to
strive to be the place for personal financial service attention and trusted
advice.
[GRAPH]
Total Average Deposits
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TOCOME]
1996
1995
Transaction Accounts
Average Balances
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TOCOME]
1996
1995
<PAGE>
1999 ANNUAL REPORT 11
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
Joseph H. Bachtiger
Executive Vice President, Trust Administration
Robert J. Ricciardi*
Executive Vice President and Chief Credit Policy Officer
Joseph W. Roskos*
Executive Vice President, Trust
Lisa M. Brinton
Senior Vice President, Estate Planning
June M. Falcone
Senior Vice President, Banking Operations
Lester E. Gallagher, III
Senior Vice President, Trust
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
William F. Mannion, Jr.
Senior Vice President, Corporate Sales
William R. Mixon
Senior Vice President, Information Systems,
and Chief Technology Officer
Thomas M. Petro
Senior Vice President, Investment Management
Joseph W. Rebl*
Senior Vice President, Treasurer, and
Chief Financial Officer
Walter Smedley, III
Senior Vice President, Corporate Sales
Leo M. Stenson
Senior Vice President and Auditor
Stephen J. Collar
Group Vice President, Consumer Credit Services
Carmen L. Fiorentino
Group Vice President, Commercial &
Real Estate Lending Services
Richard J. Fuchs
Group Vice President, Community Banking
Geoffrey L. Halberstadt
Group Vice President, Commercial & Real Estate Lending
Services, and Risk Management Officer
Joseph S. Saraceno
Group Vice President, Loan Accounting
Mame O. Skelly
Group Vice President and Comptroller
*Also officer of the Corporation
Tax, Family Office, Insurance
[PHOTO]
From left:
William H. Giese
Robert M. Fedoris
John G. Daniel
<PAGE>
12 Bryn Mawr Bank Corporation
Other Financial Services:
BMT Mortgage Company
A division of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
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
2 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania 19010
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 Division
Four Tower Bridge
200 Barr Harbor Drive, Suite 225
West Conshohocken, Pennsylvania 19428
Jere E. Estes, Senior Vice President
Joseph W. Roskos & Co.
A subsidiary of Bryn Mawr Bank Corporation
2011 Renaissance Boulevard, Suite 200
King of Prussia, Pennsylvania 19406
Joseph W. Roskos, Chairman
Robert M. Fedoris, 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
Directors:
Richard B. Cuff
Chairman, Cuffco, Inc.
Warren W. Deakins
Self-employed, Insurance Sales
John D. Firestone
Partner, Secor Group
William Harral, III
Chairman, C&D Technologies, Inc.
Wendell F. Holland, Esq.
Counsel to Obermayer, Rebmann, Maxwell & Hippel, LLP
Phyllis M. Shea
Attorney-at-Law, Shea and Shea, LLP
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.
Annual Meeting:
The Annual Meeting of Shareholders of Bryn Mawr Bank Corporation will be held in
Wyndham Alumnae House, Bryn Mawr College, Bryn Mawr, Pennsylvania, on Tuesday,
April 18, 2000, at 2:00 p.m.
Market Makers:
F. J. Morrissey & Co., Inc.
Philadelphia, Pennsylvania
McConnell Budd & Downes
Morristown, New Jersey
Ryan Beck and Company, Inc.
West Orange, New Jersey
Janney Montgomery L.L.C.
Philadelphia, Pennsylvania
Spear, Leeds & Kellogg
New York, New York
Knight Securities, L.P.
New York, New York
Herzog, Heine, Geduld, Inc.
New York, New York
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.
P.O. Box 3315,
South Hackensack, NJ 07606-1915
www.chasemellon.com
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.
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
(in thousands, except for share and per share data)
For the years ended December 31, 1999 1998* 1997* 1996* 1995*
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income .................................... $ 28,317 $ 26,082 $ 24,960 $ 24,337 $ 23,617
Interest expense ................................... 5,857 5,976 6,929 6,490 7,246
---------------------------------------------------------------------------
Net interest income ................................ 22,460 20,106 18,031 17,847 16,371
Loan loss provision ................................ 250 150 200 350 500
---------------------------------------------------------------------------
Net interest income after loan loss provision ...... 22,210 19,956 17,831 17,497 15,871
Other income ....................................... 18,610 15,076 12,086 10,423 9,197
Other expenses ..................................... 28,980 24,695 20,837 18,978 18,325
---------------------------------------------------------------------------
Income before income taxes ......................... 11,840 10,337 9,080 8,942 6,743
Applicable income taxes ............................ 3,879 3,480 2,950 2,900 2,100
---------------------------------------------------------------------------
Net income ......................................... $ 7,961 $ 6,857 $ 6,130 $ 6,042 $ 4,643
---------------------------------------------------------------------------
Per share data:
Earnings per common share:
Basic .......................................... $ 1.83 $ 1.58 $ 1.40 $ 1.38 $ 1.06
Diluted ........................................ $ 1.75 $ 1.51 $ 1.33 $ 1.33 $ 1.04
Dividends declared ............................... $ 0.60 $ 0.465 $ 0.36 $ 0.46 $ 0.25
Weighted-average shares outstanding .............. 4,349,403 4,327,297 4,392,162 4,385,094 4,377,056
Dilutive potential common shares ................. 193,915 225,708 203,660 151,698 90,740
---------------------------------------------------------------------------
Adjusted weighted-average shares ................. 4,543,318 4,553,005 4,595,822 4,536,792 4,467,796
<CAPTION>
(in thousands)
At December 31, 1999 1998 1997 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets ....................................... $ 436,820 $ 391,840 $ 374,210 $ 345,747 $ 354,956
Earning assets ..................................... 395,952 357,683 327,942 305,911 314,089
Deposits ........................................... 371,068 342,357 328,806 303,183 317,601
Shareholders' equity ............................... 46,719 42,221 39,349 35,808 31,903
For the years ended December 31, ................... 1999 1998 1997 1996 1995
<CAPTION>
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected financial ratios:
Net interest margin ................................ 6.12% 5.99% 5.59% 5.67% 5.21%
Net income to:
Average total assets ............................. 1.99% 1.91% 1.74% 1.79% 1.39%
Average shareholders' equity ..................... 17.97% 17.06% 16.45% 18.16% 15.79%
Average shareholders' equity to average total
assets ........................................... 11.10% 11.17% 10.60% 9.88% 8.79%
Dividends declared per share to net income per
basic common share ............................... 32.79% 29.43% 25.71% 33.33% 23.58%
</TABLE>
*Reclassified for comparative purposes.
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, 1999, as well as the financial
condition of the Corporation as of December 31, 1999 and 1998. The Bryn Mawr
Trust Company (the "Bank"), Tax Counsellors of Bryn Mawr, Inc. ("TCBM"), Bryn
Mawr Brokerage Company, Inc. ("BM Brokerage"), CDC Capital Management, Inc.
("CDC") and Joseph W. Roskos & Co. ("JWR&Co") 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.
From time to time, the Corporation has and will continue to make statements that
may include forward-looking information. Any forward-looking statements
contained herein are subject to certain risks and uncertainties, many of which
are out of management's direct control, that could cause actual results to
differ materially from those projected in the forward-looking statements.
Examples include, but are not limited to, the effect of prevailing economic
conditions and the current interest rate environment, as well as the overall
direction of government policies and the actions and policy directives of the
Federal Reserve Board, competitive factors in the Corporation's market area and
risks associated with the management of the credit function and fiduciary
activities.
SIGNIFICANT ITEMS FOR 1999
- --------------------------------------------------------------------------------
Growth of Non-interest Revenue Streams Through New Corporation Acquisitions
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 customers. The addition of new financial services and products creates
new sources of non-interest revenue. In January 1999, the Corporation acquired
CDC in order to offer investment advisory services to its customer base, thereby
providing a means of increasing its non-interest revenue streams. Also
established in January 1999 was BM Brokerage, to enable the Corporation's
customer base to have access to brokerage services through the Corporation. In
April 1999, the Bank acquired JWR&Co. to provide family business office services
and products to its customers. This transaction was effective as of January 1,
1999. Both acquisitions reported profits for the year, while BM Brokerage
reported a nominal loss. The three companies were primarily responsible for a
23% increase in total other income for 1999, compared to the same period in
1998.
The Corporation's other non-interest related lines of business, ICBM and TCBM,
also produced profits for the year, while increasing their non-interest revenue
streams over 1998 levels.
The Bank's business lines which provide non-interest revenue streams, the
Investment Management and Trust Division, and BMT Mortgage Company, divisions of
the Bank, were profitable in 1999. The segment profit of the Investment
Management and Trust Division grew by 13%, from $4,154,000 for 1998 to
$4,713,000 for 1999. Due primarily to an increase in interest rates on
residential mortgage loans in 1999, making financing less attractive for
borrowers, BMT Mortgage Company, dedicated to the origination and sale of
residential mortgage loans to the secondary mortgage market, showed a 39%
decline in its segment profit from $1,329,000 in 1998 to $805,000 in 1999. The
effect of changing interest rates on BMT Mortgage Company's profitability runs
counter cyclical to the Bank's Banking segment. As interest rates moved upward
during 1999 and BMT Mortgage Company's loan origination and sale activity
declined, the Bank's net interest margin and related net interest income
generally increased. While net interest income increased by $2,354,000 or 12%,
$393,000 or 17% of the increase was attributable to rate changes in 1999.
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 1999, compared to total revenues,
to 40% from 36% for 1998.
Dividend Increase
Based on a continued growth in record earnings, the Corporation increased its
quarterly dividend payment for 1999 by 25%, from $0.12 per share in 1998 to
$0.15 per share in 1999. The Corporation's dividend payout ratio was 32.79% of
basic earnings per share for 1999, compared to 29.43% for 1998.
Stock Repurchase Program
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. This program was renewed again in 1999, authorizing management to
repurchase up to 5% of the outstanding shares as of March 1999, while not
spending more than $6,500,000 (the "Stock Repurchase Program"). During 1999, the
Corporation repurchased 96,500 shares of the Corporation's common stock, at a
cost of $2,530,000.
2
<PAGE>
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Overview
The Corporation reported a 16% increase in net income of $7,961,000 for the year
ended December 31, 1999, another record year for Corporation earnings. Net
income for 1998 amounted to $6,857,000.
Earnings per common share amounted to $1.83 in 1999, a 16% increase over $1.58
for 1998. Earnings per common share-assuming dilution were $1.75 and $1.51 for
1999 and 1998, respectively. The dilutive potential common shares added to the
weighted-average shares outstanding were 193,915 and 225,708 for 1999 and 1998,
respectively.
These record earnings results for 1999 were due to a number of factors. Net
interest income, spurred on by a 13% increase in average outstanding loans,
increased by $2,354,000 or 12%. Non-interest revenue streams grew by $3,534,000
or 23%. This growth is due primarily to the addition of new revenue streams from
CDC and JWR&Co., acquired in early 1999 ("the New Acquisitions"). Fees from
Investment Management and Trust revenues increased by $512,000 or 6% over
similar revenues for 1998. During 1999, five Trust officers resigned from the
Bank (the "Resignations"), taking some trust accounts with them. The
Resignations and related loss of these accounts caused a $298,000 decrease in
related trust fees in 1999. However, after accounting for the related decrease
in salary and fringe benefit expenses, combined with the timing of the transfer
of the trust accounts attributable to the Resignations, pre-tax income increased
by $116,000.
Exclusive of OREO related revenues, total other income increased by $3,713,000
or 25% over similar revenues for 1998. Other expenses increased $4,285,000 or
17% in 1999, compared to 1998. This increase in other expense is partially due
to the New Acquisitions.
Return on average assets for the year increased to 1.99% from 1.91% in 1998,
while return on average equity for 1999 was 17.97% compared to 17.06% in 1998.
EARNINGS PERFORMANCE
- --------------------------------------------------------------------------------
Lines of Business
The Corporation continues to have four significant business lines from which it
derives its earnings. Its core business line is the Banking line of business.
Additional earnings streams are obtained from its Investment Management and
Trust line of business and its Mortgage Banking line of business--the
origination, servicing and sale of mortgage loans to the secondary mortgage
market. The fourth segment, included in "All Other" in the following
segmentation analysis, has net revenues from financial services and products,
offered through its subsidiaries, as well as the Bank's subsidiary, ICBM.
Following is a segmentation analysis of the results of operations for those
lines of business for 1999 and 1998:
TABLE 1 - Line of Business Analysis
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------------
Mortgage All
(dollars in thousands) Banking Trust Banking Other Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income .......................... $22,310 $ -- $ 145 $ 5 $22,460
Less loan loss provision ..................... 250 -- -- -- 250
------------------------------------------------------------------------------
Net interest income after
loan loss provision ........................ 22,060 -- 145 5 22,210
Other income:
Fees for investment
management and trust
services ................................ -- 9,784 -- -- 9,784
Service charges on deposit
accounts ................................ 1,156 -- -- -- 1,156
Other fees and service
charges ................................. 571 -- 762 -- 1,333
Net gain on sale of
loans ................................... 44 -- 984 -- 1,028
Gain on sale of other real
estate owned ............................ 45 -- -- -- 45
Other operating income ..................... 1,115 -- -- 4,568 5,683
------------------------------------------------------------------------------
Total other income ........................... 2,931 9,784 1,746 4,568 19,029
Other expenses:
Salaries-regular ........................... 7,251 2,852 469 1,874 12,446
Salaries-other ............................. 1,754 230 78 184 2,246
Fringe benefits ............................ 1,474 565 80 215 2,334
Occupancy .................................. 3,090 476 149 456 4,171
Other operating expenses ................... 5,218 948 310 1,726 8,202
------------------------------------------------------------------------------
Total other expenses ......................... 18,787 5,071 1,086 4,455 29,399
------------------------------------------------------------------------------
Segment profit ............................... $ 6,204 $ 4,713 $ 805 $ 118 $11,840
------------------------------------------------------------------------------
% of segment profit .......................... 52% 40% 7% 1% 100%
<CAPTION>
1998*
------------------------------------------------------------------------------
Mortgage All
(dollars in thousands) Banking Trust Banking Other Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income .......................... $20,052 $ -- $ 51 $ 3 $20,106
Less loan loss provision ..................... 150 -- -- -- 150
------------------------------------------------------------------------------
Net interest income after
loan loss provision ........................ 19,902 -- 51 3 19,956
Other income:
Fees for investment
management and trust
services ................................ -- 9,272 -- -- 9,272
Service charges on deposit
accounts ................................ 1,169 -- -- -- 1,169
Other fees and service
charges ................................. 571 -- 701 -- 1,272
Net gain on sale of
loans ................................... 35 -- 1,647 -- 1,682
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 2,348 1,079 15,329
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) ........................ $ 5,323 $ 4,154 $ 1,329 $ (469) $10,337
------------------------------------------------------------------------------
% of segment profit
(loss) ..................................... 51% 40% 13% -4% 100%
</TABLE>
Bryn Mawr Bank Corporation, Tax Counsellors of Bryn Mawr, Inc., Insurance
Counsellors of Bryn Mawr, Inc., Bryn Mawr Brokerage Company, Inc., CDC Capital
Management, Inc. and Joseph W. Roskos & Company have all been aggregated in All
Other.
* Reclassified for comparative purposes.
The table reflects operating profits (losses) of each line of business before
income taxes.
There was an increase in Investment Management and Trust operating profits, up
13%, while the Mortgage
3
<PAGE>
Banking segment's operating profits decreased 39% in 1999, compared to 1998. The
Banking segment's operating profits grew by 17% from 1998 levels. The Banking
segment's percentage of operating profits stood at 52% for 1999, compared to 51%
for 1998. Investment Management and Trust's percentage of operating profit was
40% for both years. The Mortgage Banking segment's share of operating profits
decreased from 13% in 1998 to 7% in 1999, while the "All Other" segment,
including the New Acquisitions, increased from (4%) in 1998 to 1% in 1999.
Banking Line of Business
The Bank's average outstanding earning assets of $359,261,000 increased 9% from
$328,605,000 for 1998. Average outstanding loans grew by 13% in 1999. The
largest dollar increase in average outstanding loans occurred in commercial and
industrial loans, up $17,601,000 or 21% over 1998 average balances. Commercial
mortgage loans grew by $9,995,000 or 23% over 1998 average balances, and average
outstanding construction loans rose by $1,833,000 or 14% over similar average
outstanding balances for 1998. Average outstanding residential mortgage loans
grew by $6,695,000 or 51% in 1999, compared to similar average outstanding
balances in 1998. BMT Mortgage Company chose to hold some of the originated
residential mortgage loans in its loan portfolio. Offsetting these increases,
were decreases in the average outstanding balances of the Bank's consumer loan
portfolio, down $4,491,000 or 4% from 1998's average outstanding balances. Lower
consumer loan demand, caused by increased competition from automobile
manufacturers for new automobile loans, was primarily responsible for the
reduction in the percentage of loan growth in the average outstanding consumer
loan portfolio in 1999. The average outstanding balances of federal funds sold
decreased by 22% in 1999 compared to 1998 levels, partially funding the growth
in the loan portfolio. Average outstanding investments decreased by 6% for 1999,
compared to 1998.
Average outstanding total deposits increased 9% in 1999, compared to 1998. The
largest dollar increase occurred in the Bank's non-interest bearing demand
deposits and low costing NOW account balances, up $9,325,000 or 11% and
$8,452,000 or 10%, respectively. Average money market account balances increased
by $5,546,000 or 13%. Average outstanding balances of higher costing
certificates of deposit ("CDs") grew by $3,497,000 or 6%. Average outstanding
savings deposits increased 2% or $722,000. The change in the mix of average
outstanding deposits, increasing non-interest bearing and lower costing NOW and
money market account balances, at a greater percentage of increase than higher
costing CDs, led to a $119,000 or 2% decrease in interest expense and an
increase in the net interest margin to 6.12% in 1999 from 5.99% for 1998. An
expanded discussion of net interest income follows under the section entitled
"Net Interest Income".
Exclusive of OREO gains in each period, other income from the banking segment
increased by 20% in 1999 compared to 1998. This was due primarily to a 77%
increase in other operating income. During the first quarter of 1999, the Bank
leased two buildings in Bryn Mawr (the "Buildings"). The Buildings are located
directly across Lancaster Avenue from the Bank's main office and are to be used
for future expansion. Existing tenants generated $250,000 in rental income,
included in other operating income, accounting for more than one-half of the
increase in other operating income, over 1998 levels.
Total other expenses of the Banking line of business increased 9% in 1999
compared to 1998 levels. Overall, the operating profits of the Banking line of
business increased 17% in 1999 compared to 1998.
Investment Management and Trust Line of Business
The Bank's Investment Management and Trust Division reported a 13% increase in
operating profit for 1999 compared to 1998 levels. As previously stated, the
Resignations were directly responsible for a $298,000 decrease in fees from
Investment Management and Trust services. Total Investment Management and Trust
fee income rose 6% in 1999. The market value of assets under administration
decreased from $2,101,215,000 at December 31, 1998, to $1,887,295,000 as of
December 31, 1999. Trust assets under management, included in above, decreased
from $1,270,323,000 at December 31, 1998 to $1,127,715,000 as of December 31,
1999. The movement of accounts, caused by the Resignations is primarily
responsible for this decrease. CDC had assets under advisement of $295,466,000
as of December 31, 1999, bringing total investment assets under administration
or advisement at December 31, 1999 to $2,182,761,000.
Reflecting the effect of the Resignations, other expenses of the Investment
Management and Trust line of business decreased 1% in 1999 over 1998 levels.
Salary expense was down compared to 1998 levels.
Mortgage Banking Line of Business
The operating profit of the Bank's Mortgage Banking line of business decreased
39% in 1999 compared to 1998. During 1999, mortgage interest rates rose enough
to make refinancing less attractive to borrowers. In 1999, the Mortgage Banking
line of business had a 45% decrease in the volume of loans sold in the secondary
mortgage market, partially offset by an 11 basis point increase in the yield on
sales, compared to 1998 levels. Following is a table showing the volume of
residential mortgage loans originated and sold in the secondary
4
<PAGE>
mortgage market, the total net gains realized, and the yield on these loan
sales:
TABLE 2 - Summary of Loan Sale Activity
(dollars in thousands) 1999 1998*
------------------------
Volume of loans sold ............................ $ 73,921 $134,676
Loan fees and net gains on
sales ....................................... 984 1,647
Yield on sales .................................. 1.33% 1.22%
* Restated for comparative purposes.
As of December 31, 1999, the Bank serviced $283,124,000 in residential mortgage
loans for others, compared to $271,836,000 in loans serviced for others at
year-end 1998.
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.
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 and an attorney (the "Tax
Professionals"), having significant tax planning, preparation and financial
planning capabilities. 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 second full year
of operation, TCBM exceeded the revenue goals established in the profit sharing
agreement, adding $5,000 to the Corporation's net income for 1999, compared to
$10,000 for 1998.
Insurance Counsellors of Bryn Mawr, Inc.
In January 1998, the Bank established a new wholly-owned subsidiary, ICBM (a
full-service insurance agency), 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 1999, ICBM
reported net income of $65,000 compared to a loss of $26,000 for 1998.
Bryn Mawr Brokerage Company, Inc.
The Corporation established BM Brokerage in January 1999, in order to make
brokerage services available to its client base through an affiliation with an
independent broker-dealer. During its first year of operation, BM Brokerage
reported a net loss of $6,000.
CDC Capital Management, Inc.
In January 1999, the Corporation acquired CDC for $281,000 in Corporation stock,
a portion of which was issued at the time of the acquisition. The balance of the
shares will be issued at the first and second anniversary of the acquisition.
Goodwill, in the amount of $177,000, was recorded on the Corporation's books, to
be amortized over a 10-year life. CDC was acquired to enable the Corporation to
enhance its array of financial services and products by offering investment
advisory services to its clients. CDC reported a net profit of $6,000 for 1999.
Joseph W. Roskos & Co.
On April 1, 1999, the Corporation acquired JWR&Co., effective January 1, 1999,
for $4,195,000, through a combination of Corporation stock and cash. Goodwill in
the amount of $3,300,000 was recorded on the Corporation's books, to be
amortized over a 20-year life. JWR&Co. was acquired to expand the products and
services being offered by the Corporation. JWR&Co. provides family business
office services to high-net-worth individuals, including accounting and tax
preparation services, consulting and fiduciary support services. JWR&Co.
reported a net profit of $344,000 in 1999, before the amortization of $164,000
of goodwill.
Net Interest Income
A 9% or $2,235,000 increase in interest income, combined with a 2% or $119,000
decrease in interest expense, from year to year, resulted in an overall increase
in net interest income of 12% or $2,354,000. Average earning assets grew 9% in
1999, compared to 1998 levels. Higher yielding average outstanding loan balances
grew by 13%. The average outstanding balances of investments and federal funds
sold decreased by 6% and 22%, respectively. Total average deposits increased 9%.
The largest increase occurred in the Bank's lower costing average outstanding
money market checking accounts, up by 13%, followed by non-interest bearing
demand deposits, up by 11%, while NOW account balances grew by 10%. Average
outstanding savings deposits increased by 2%. Average outstanding CDs increased
by 6% over 1998 levels. This growth in average low cost and non-interest bearing
deposits, compared to a lower growth rate of higher costing CDs, is primarily
responsible for a 22 basis point decrease in the average cost of funds for 1999,
compared to 1998. 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 5.99% for
1998 to 6.12% for 1999.
5
<PAGE>
The following table shows an analysis of the composition of net interest income
for each of the last three years. Interest income on loans includes fees on
loans of $465,000, $413,000 and $405,000 in 1999, 1998 and 1997 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>
1999 1998** 1997**
------------------------------------------------------------------------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
(dollars in thousands) Balance Expense Paid Balance Expense Paid Balance Expense Paid
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks .......... $ 22,060 $ -- --% $ 19,065 $ -- --% $ 23,329 $ -- --%
Interest-bearing deposits with
other banks* ................... 2,173 103 4.7 1,345 68 5.1 176 8 4.5
Federal funds sold* .............. 12,272 609 5.0 15,665 824 5.3 16,964 935 5.5
Investment securities
available for sale:
Taxable* ....................... 30,440 1,698 5.6 31,760 1,880 5.9 32,693 1,988 6.1
Tax-exempt* .................... 4,162 183 4.4 4,953 224 4.5 5,868 283 4.8
------------------------------------------------------------------------------------------------
Total investment securities .... 34,602 1,881 5.4 36,713 2,104 5.7 38,561 2,271 5.9
------------------------------------------------------------------------------------------------
Loans* ........................... 310,214 25,724 8.3 274,882 23,085 8.4 259,847 21,746 8.4
Less allowance for loan
losses ......................... (4,257) -- -- (4,088) -- -- (4,247) -- --
------------------------------------------------------------------------------------------------
Net loans ...................... 305,957 25,724 8.4 270,794 23,085 8.5 255,600 21,746 8.5
Other assets ..................... 21,997 -- -- 16,278 -- -- 16,807 -- --
------------------------------------------------------------------------------------------------
Total assets ................... $399,061 $ 28,317 -- $359,860 $ 26,081 -- $351,437 $ 24,960 --
------------------------------------------------------------------------------------------------
Liabilities:
Demand deposits, noninterest-
bearing ........................ $ 92,098 $ -- --% $ 82,773 $ -- --% $ 76,076 $ -- --%
Savings deposits ................. 184,505 2,533 1.4 169,785 2,923 1.7 158,752 3,058 1.9
Time deposits .................... 65,000 3,008 4.6 61,503 3,052 5.0 73,792 3,871 5.2
Short term borrowings ............ 4,658 266 5.7 0 0 0.0 0 0 0.0
Federal funds purchased .......... 954 50 5.2 18 1 5.6 5 0 6.0
Other liabilities ................ 7,554 -- -- 5,595 -- -- 5,550 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities .............. 354,769 5,857 -- 319,674 5,976 -- 314,175 6,929 --
Shareholders' equity ............. 44,292 -- -- 40,186 -- -- 37,262 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity ........ $399,061 $ 5,857 -- $359,860 $ 5,976 -- $351,437 $ 6,929 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets* .......... $359,261 -- -- $328,605 -- -- $315,548 -- --
Interest income to earning
assets ......................... -- -- 7.9 -- -- 7.9 -- -- 7.9
Interest expense to earning
assets ......................... -- -- 1.6 -- -- 1.8 -- -- 2.2
Net yield on
interest-earning assets ..... -- -- 6.3 -- -- 6.1 -- -- 5.7
Average effective rate paid on
interest-bearing liabilities ... -- -- 2.3 -- -- 2.6 -- -- 3.0
Net interest margin .............. -- -- 6.12 -- -- 5.99 -- -- 5.59
</TABLE>
* Indicates earning assets.
** Reclassified for comparative purposes.
6
<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
$52,000 in 1999, $8,000 in 1998, and ($47,000) in 1997.
TABLE 4 - Rate/volume Analyses
<TABLE>
<CAPTION>
(in thousands) 1999 vs. 1998 1998 vs. 1997
------------------------------ ------------------------------
Increase/(decrease) Volume Rate Total Volume Rate Total
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest-bearing
deposits with other
banks ............................. $ 41 ($ 6) $ 35 $ 59 $ 1 $ 60
Federal funds sold ................... (170) (45) (215) (75) (36) (111)
Investment securities
available for sale:
Taxable ........................... (82) (100) (182) (50) (58) (108)
Tax-exempt ........................ (36) (5) (41) (42) (17) (59)
Loans .................................. 2,918 (279)* 2,639 1,339 0* 1,339
----------------------------------------------------------------
Total interest income .................. 2,671 (435) 2,236 1,231 (110) 1,121
----------------------------------------------------------------
Interest expense:
Savings deposits ..................... 208 (596) (390) 198 (333) (135)
Time deposits ........................ 186 (230) (44) (665) (154) (819)
Short term
borrowings ........................ 266 0 266 0 0 0
Fed funds purchased .................. 49 0 49 1 0 1
----------------------------------------------------------------
Total interest expense ............... 709 (826) (119) (466) (487) (953)
----------------------------------------------------------------
Interest differential .................. $1,962 $ 393 $2,355 $1,697 $ 377 $2,074
================================================================
</TABLE>
* Included in the loan rate variance was an increase (decrease) in interest
income related to non-performing loans of $327,000 and ($230,000) in 1999
and 1998, respectively. The variances due to rate include the effect of
nonaccrual loans because no interest is earned on such loans.
The 9% growth in interest income for 1999 was attributable to a 9% increase in
average earning assets from $328,605,000 for 1998 to $359,261,000 for 1999. The
yield on average outstanding earning assets remained level for 1999, compared to
1998, at 7.9% for both periods. The average yield on loans decreased 10 basis
points, from 8.4% in 1998 to 8.3% in 1999. The average yield on federal funds
sold decreased 30 basis points, to 5.0% for 1999, compared to 5.3% for 1998. The
yield on the investment portfolio decreased by 30 basis points from 5.7% in 1998
to 5.4% in 1999. This was 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 13%
increase in average outstanding loans. Partially offsetting this increase in the
volume variance was a reduction in interest income related to the rate variance,
due primarily to the 10 basis point decrease on the average yield on the loan
portfolio.
As of December 31, 1999, outstanding loans increased 21% over December 31, 1998
loan balances. The most significant loan growth came in commercial and
industrial loans, which grew by 34% year end to year end. Permanent mortgage
loans, including both commercial mortgage loans and residential mortgage loans
increased by 22%. Commercial mortgage loans grew by 8%, while residential
mortgage loan balances increased by 66%. Construction loan outstanding balances
increased 9%. A 3% increase in outstanding consumer loans is due primarily to a
3% increase in short-term indirect automobile loan balances at year-end 1999
compared to year-end 1998.
Average deposits increased $27,542,000 or 9% during 1999. This was due to a
continued reaction to banking consolidations in the Bank's market area and the
acquisition of new commercial and trust accounts. The Bank's average money
market rate accounts grew by 13%, while NOW accounts grew by 10% and non-
interest bearing demand deposits and average outstanding savings deposits
increased by 11% and 2%, respectively. CD balances increased by 6%. Increasing
lower and no cost balances were primarily responsible for the 2% decrease in
interest expense for 1999. The cost of funds for the Bank averaged 1.7% for 1999
compared to 1.9% for 1998.
Loan Loss Provision
The Bank provided a loan loss provision of $250,000 for 1999, compared to
$150,000 for 1998. The allowance for possible loan losses was $4,400,000 and
$4,100,000 as of December 31, 1999 and 1998, respectively. Delinquencies, as a
percentage of outstanding loans, amounted to 57 basis points and 46 basis points
as of December 31, 1999 and 1998, respectively. The ratio of the loan loss
reserve to non-performing loans was 556% and 832% as of December 31, 1999 and
1998, respectively. Non-performing loans amounted to $792,000 at December 31,
1999, a 61% increase from $493,000 at December 31, 1998. The primary cause of
this increase was the reinstatement of a loan to non-performing status that had
been included in the Bank's OREO at December 31, 1998. Total non-performing
assets, including OREO, increased by 4% from $764,000 at December 31, 1998, to
$792,000 at December 31, 1999. The allowance for possible loan losses, as a
percentage of outstanding loans, was 1.30% as of December 31, 1999, compared to
1.46% as of December 31, 1998. Bank management has determined that the 1999 loan
loss provision was sufficient to maintain an adequate level of the allowance for
possible loan losses during 1999.
7
<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>
<CAPTION>
TABLE 5 - Allowance for Possible Loan Losses
December 31,
---------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses:
Balance, January 1 ............................ $ 4,100 $ 4,074 $ 4,182 $ 3,652 $ 3,618
---------------------------------------------------------
Charge-offs:
Commercial and industrial ................... (10) (42) (196) (84) (527)
Real estate--construction ................... -- -- -- -- --
Real estate--mortgage ....................... 22 (22) -- (4) (8)
Consumer .................................... (209) (179) (237) (180) (234)
---------------------------------------------------------
Total charge-offs ........................... (197) (243) (433) (268) (769)
---------------------------------------------------------
Recoveries:
Commercial and industrial ................... 87 100 102 404 236
Real estate--construction ................... 116 -- -- -- --
Real estate--mortgage ....................... -- -- -- 8 13
Consumer .................................... 44 19 23 36 54
---------------------------------------------------------
Total recoveries ......................... 247 119 125 448 303
---------------------------------------------------------
Net recoveries/
(charge-offs) ......................... 50 (124) (308) 180 (466)
Provision for loan losses ..................... 250 150 200 350 500
---------------------------------------------------------
Balance, December 31 .......................... $ 4,400 $ 4,100 $ 4,074 $ 4,182 $ 3,652
---------------------------------------------------------
Net recoveries/(charge-offs)
to average loans ............................ 0.02% (0.05%) (0.12%) 0.07% (0.21%)
</TABLE>
The negative charge-off of $22,000 in real estate - mortgage loans reflects the
adding back to the loan loss reserve of an amount previously charged off, in
conjunction with the acquisition of other real estate owned.
TABLE 6 - Allocation of Allowance For Possible Loan Losses
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>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------
% % % % %
Loans Loans Loans Loans Loans
To To To To To
Total Total Total Total Total
(dollars in thousands) Loans Loans Loans Loans Loans
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to: ..
Commercial and industrial ................ $ 151 39.7% $ 427 31.8% $ 316 28.1% $ 483 28.8% $1,295 28.7%
Real estate--construction ................ 33 4.2 81 4.7 1,111 5.1 751 2.9 648 3.8
Real estate--mortgage .................... 228 35.4 161 39.3 184 38.2 289 36.9 259 36.4
Consumer ................................. 279 20.7 301 24.2 465 28.6 609 31.4 619 31.1
---------------------------------------------------------------------------------------
Unallocated .............................. 3,709 -- 3,130 -- 1,998 -- 2,050 -- 831 --
---------------------------------------------------------------------------------------
Total .................................. $4,400 100.0% $4,100 100.0% $4,074 100.0% $4,182 100.0% $3,652 100.0%
---------------------------------------------------------------------------------------
</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 14 for further
discussion of the Corporation's loan review process.
8
<PAGE>
Other Income
The following table details other income for the years ended December 31, 1999
and 1998, and the percent change from year to year:
TABLE 7 - Other Income
1999 1998 % Change
----------------------------------
Fees for trust services .................. $ 9,784 $ 9,272 6%
Service charges on deposit
accounts ............................. 1,156 1,169 (1%)
Other fees and service
charges .............................. 1,333 1,272 5%
Net gain on sale of loans ................ 1,028 1,682 (39%)
Gain on sale of other real
estate owned ......................... 45 224 (80%)
Fees earned from family
business office services ............. 1,947 -- --
Investment advisory and
brokerage fees ....................... 1,218 -- --
Tax consulting fees ...................... 702 655 7%
Insurance commission income .............. 326 188 73%
Other operating income ................... 1,071 614 74%
----------------------------------
$18,610 $15,076 23%
----------------------------------
In addition to net interest income, the Bank's three operating segments, as well
as TCBM, ICBM, BM Brokerage, CDC and JWR&Co. generate various streams of
fee-based income, including Investment Management and Trust income, service
charges on deposit accounts, loan servicing income, consulting fees 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 1999 from 1998 levels was primarily a result of
revenues from newly established or acquired lines of business in 1999, an
increase in Investment Management and Trust fees and rental income received from
the tenants in the Buildings. These increases were partially offset by decreases
in gains on the sale of residential mortgage loans and a decrease in OREO gains,
compared to 1998.
Fees from the family office business and investment advisory and brokerage fees
amounted to $3,165,000. No such fees were earned in 1998.
Trust income grew $512,000 or 6% from year to year. Refer to the discussion
under the heading "Investment Management and Trust Line of Business on page 4 of
this report.
As discussed in the "Mortgage Banking Line of Business" section, the $654,000 or
39% decrease in gains on the sale of loans was directly attributable to an 45%
decrease in the volume of loans sold in 1999 compared to 1998, partially offset
by an 11 basis point increase in the yield realized on the sale of loans in 1999
compared to 1998.
Gains on the sale of OREO decreased by $179,000 or 80%. This is a direct result
of the Bank disposing of the majority of its OREO prior to 1999.
Tax consulting and insurance commission income increased $47,000 or 7% and
$138,000 or 73%, respectively.
Other operating income increased $457,000 or 74% in 1999 from 1998 levels,
primarily due to new sources of rental income from the Buildings, adding
$250,000 in new other operating income, not present in 1998. Fees from merchant
credit card processing increased by $92,000 over 1998 levels and cash management
related fee income grew by $65,000. This growth is directly attributable to
growth in the banks off-balance sheet mutual fund balances, which increased from
$43,007,000 at December 31, 1998 to $100,372,000 at December 31, 1999. Exclusive
of these increased revenue streams, other operating income increased by $50,000
for 1999, compared to 1998.
Other Expenses
The following table details other expenses for the years ended December 31, 1999
and 1998, and the percent change from year to year:
TABLE 8 - Other Expenses
1999 1998 % Change
-------------------------------------
Salaries-regular ...................... $12,446 $10,289 21%
Salaries-other ........................ 2,226 2,375 (6%)
Employee benefits ..................... 2,334 1,908 22%
Occupancy expense ..................... 1,928 1,392 39%
Furniture, fixtures, and
equipment ......................... 1,968 1,817 8%
Advertising ........................... 1,290 1,283 1%
Professional fees ..................... 1,148 811 42%
Computer processing ................... 560 569 (2%)
Merchant credit card
processing ........................ 524 466 12%
Stationery and supplies ............... 408 354 15%
Insurance ............................. 373 213 75%
Amortization of goodwill .............. 183 -- --
Net cost of operation of other
real estate owned ................. 8 7 14%
Other operating expenses .............. 3,584 3,211 12%
-------------------------------------
Total other expenses .................. $28,980 $24,695 17%
-------------------------------------
Other expenses increased for the year ended December 31, 1999, by 17% compared
to 1998. Regular salaries, consisting of regular, part time and overtime salary
expense and the largest component of other expenses, rose 21%, due primarily to
the New Acquisitions in 1999. Exclusive of regular salary expense from
Brokerage, CDC and JWR&Co., which produced no expense in 1998, total regular
salaries increased by 10%. Merit increases and staffing additions, during 1999,
are primarily responsible for this increase. As of December 31, 1999, the
Corporation's consolidated full-
9
<PAGE>
time equivalent staffing level was 266.5 compared to 239.5 as of December 31,
1998.
Other salaries, which primarily consist of incentive compensation, decreased 6%
from 1998 to 1999. The $149,000 decrease was primarily related to Investment
Management and Trust incentive-based compensation.
Employee benefit costs increased $426,000 or 22% in 1999 over 1998 levels. Of
this increase, $119,000 relates to the newly acquired or started companies in
1999. A $158,000 increase in the cost of the Corporation's pension expense,
along with $76,000 and $45,000 respective increases in the cost of the Bank's
social security taxes and medical insurance premiums account for $398,000 of the
$426,000 increase. Additional participants in the pension plan, as well as an
increased staff are the primary reasons for these increased expense categories.
Occupancy expenses increased $536,000 or 39% from 1998 to 1999. The largest
increase relates to occupancy costs associated with the Buildings, which
amounted to $294,000 for 1999. No such expenses were incurred during 1998. The
cost to the Bank for use of the Buildings in 1999, net of the respective rental
income was $61,000. Increased office rent expense for Investment Counsellors of
Bryn Mawr, a division of the Investment Management and Trust Division, amounted
to $38,000, compared to similar rent expense for 1998, and occupancy expense
associated with the New Acquisitions amounted to $182,000, accounting for
$514,000 of the $536,000 increase.
Furniture, fixtures and equipment expense increased by $151,000 or 8% in 1999,
compared to 1998. The rental of office equipment increased $46,000, as some Bank
departments were relocated, in anticipation of renovations within the main Bank
building.
Depreciation expense for the Bank was also up by $51,000, reflecting the effect
of capital improvements made during 1999. Expenses associated with the New
Acquisitions in 1999 amounted to $69,000.
Advertising remained relatively level for 1999, compared to 1998, at $1,290,000
and $1,283,000 for the respective periods.
The cost of merchant credit card processing increased $68,000 or 15% as the
volume of merchant processing increased. These fees were more that offset by
related revenues, included in other operating income.
The cost of professional fees increased by $337,000 or 42%. The primary reason
for this increase was solicitation fees paid for business referrals to CDC in
the routine operation of CDC's investment advisory business. CDC incurred
$565,000 in solicitation fees in 1999. No such fees were incurred during 1998.
Exclusive of these solicitation fees, professional fees decreased by $228,000 or
28% for the twelve months ended December 31, 1999, compared to the same period
in 1998. A recovery of legal fees in 1999, related to a previously charged-off
loan, was primarily responsible for this decrease in professional fees.
Stationery and supplies expense increased $54,000 or 15% in 1999, compared to
1998, due primarily to additional costs in 1999, associated with the production
of new product brochures as well as letterhead for the new subsidiary companies,
acquired or established during 1999.
Insurance expense increased by $160,000 or 75%. 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 1998 to 1999, while the
Corporation's business insurance premiums accounted for the $160,000 increase
during 1999, compared to similar premiums in 1998. Expanded policy limits and
the addition of the New Acquisitions were responsible for this increase.
Goodwill amounting to $3,477,000 was recorded on the Corporation's books as a
result of the acquisition of CDC and JWR&Co. Their respective amortization
periods are 10 and 20 years. The goodwill is being amortized on a straight-line
method at a cost of $183,000 for 1999. No such cost was incurred for 1998.
Other operating expenses increased $373,000 or 12% from 1998 to 1999. Included
in 1999's expense were expenses of the New Acquisitions of $238,000. Exclusive
of these expenses, other operating expenses increased by 4% over 1998 levels.
Income Taxes
Federal income taxes for 1999 were $3,879,000, compared to $3,480,000 for 1998.
This represents an effective tax rate of 32.8% and 33.7% for 1999 and 1998,
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 10 to the consolidated financial statements.
10
<PAGE>
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Investment Securities
Management has elected to classify 100% of the investment portfolio as available
for sale. Therefore, the investment portfolio was carried at its estimated
market value of $29,611,000 and $50,960,000 as of December 31, 1999 and 1998,
respectively. The amortized cost of the portfolio as of December 31, 1999 was
$30,201,000, resulting in net unrealized losses of $590,000. The amortized cost
of the portfolio at December 31, 1998 was $50,808,000, resulting in net
unrealized gains of $152,000.
The maturity distribution and weighted average yields on a fully tax-equivalent
basis of investment securities at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
TABLE 9 - Investment Portfolio
Maturing Maturing
Maturing From 2001 From 2005
During Through Through Maturing
(dollars in thousands) 2000 2004 2009 After 2009 Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Obligations of the
U.S. Government and
agencies:
Book value ..................... $ 1,993 $ 22,432 $ -- $ -- $ 24,425
Weighted average
yield ....................... 6.0% 5.5% -- -- 5.6%
State and political
subdivisions:
Book value ..................... 1,478 1,740 -- -- 3,218
Weighted average
yield ....................... 7.0% 6.3% -- -- 6.6%
Other investment
securities:
Book value ..................... -- -- -- 1,968 1,968
Weighted average
yield ....................... -- -- -- 6.2% 6.2%
---------------------------------------------------------------------
Total book value ................. $ 3,471 $ 24,172 $ -- $ 1,968 $ 29,611
Weighted average
yield .......................... 6.3% 5.6% -- 6.2% 5.8%
</TABLE>
In addition to $57,180,000 in maturities, during 1999, $6,000,000 in municipal
bonds were called. These increases in available funds, combined with an increase
in total deposits for 1999 of $28,711,000, partially offset by net originations
of the loan portfolio of $21,728,000 prompted Bank management to purchase
$42,553,000 in U.S. Government or U.S. Government Agency securities. Those
transactions were primarily responsible for the $21,262,000 or 42% decrease in
the investment portfolio from December 31, 1998, to December 31, 1999. At
December 31, 1999, approximately 82% of the investment portfolio consisted of
fixed rate U.S. Government and U.S. Government Agency securities. The
Corporation does not own any derivative instruments and does not plan to
purchase any of those instruments 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 lines of credit loans (the Bank's "CreditLine"
product) are included in consumer loans.
A breakdown of the loan portfolio by major categories at December 31 for each of
the last five years is as follows:
TABLE 10 - Loan Portfolio
December 31
-------------------------------------------------
(in thousands) 1999 1998 1997 1996 1995
-------------------------------------------------
Real estate loans:
Permanent mortgage
loans ................ $134,495 $110,535 $102,474 $ 95,588 $ 85,752
Construction loans ...... 14,398 13,204 13,647 7,639 8,905
Commercial and
industrial loans ........ 119,835 89,368 75,474 74,688 67,507
Consumer loans ............ 70,211 68,078 76,963 81,512 73,189
-------------------------------------------------
Total ................... $338,939 $281,185 $268,558 $259,427 $235,353
-------------------------------------------------
The maturity distribution of the loan portfolio, excluding loans secured by
one-family residential property and consumer loans, at December 31, 1999, is
shown below.
Maturing
Maturing From 2001
During Through Maturing
(in thousands) 2000 2004 After 2004 Total
------------------------------------------------
Commercial, financial,
and agricultural ........ $ 65,367 $ 27,308 $ 27,160 $119,835
Real estate--construction . 7,858 6,538 2 14,398
Real estate--other ........ 1,817 12,135 40,176 54,128
------------------------------------------------
Total ................ $ 75,042 $ 45,981 $ 67,338 $188,361
------------------------------------------------
Interest sensitivity on the
above loans:
Loans with
predetermined rates .. $ 8,817 $ 28,765 $ 20,767 $ 58,349
Loans with adjustable or
floating rates ....... 66,225 17,216 46,571 130,012
------------------------------------------------
Total ................ $ 75,042 $ 45,981 $ 67,338 $188,361
------------------------------------------------
There are no scheduled prepayments on the loans included in the maturity
distributions.
11
<PAGE>
<TABLE>
<CAPTION>
TABLE 11 - LOAN PORTFOLIO AND NON-PERFORMING ASSET ANALYSIS
---------------------------------------------------------------------------------------------
Loan Loss
Loan Portfolio Nonperforming Assets Reserve
---------------------------------------------------------------------------------------------
Past Due Past Due Non- Other Total Non- Reserve for
30 to 89 90 Days Total Performing Real Estate Performing Loan Loss
(in thousands) Current Days or More Loans Loans* Owned Assets Allocation
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Permanent mortgage loans:
Residential ............ $ 26,035 $ 258 $ 41 $ 26,334 $ 41 $ -- $ 41 $ --
Commercial ............. 53,402 47 679 54,128 679 -- 679 --
Home equity ............ 53,797 217 19 54,033 19 -- 19 --
---------------------------------------------------------------------------------------------
Total permanent mortgage
loans ................ 133,234 522 739 134,495 739 -- 739 228
Construction mortgage
loans:
Residential ............ 14,396 -- -- 14,396 -- -- -- --
Commercial ............. 2 -- -- 2 -- -- -- --
---------------------------------------------------------------------------------------------
Total construction
mortgage loans .... 14,398 -- -- 14,398 -- -- -- 33
---------------------------------------------------------------------------------------------
Total real estate
loans ............. 147,632 522 739 148,893 739 -- 739 261
Commercial and Industrial
loans .................... 119,523 312 -- 119,835 -- -- -- --
---------------------------------------------------------------------------------------------
Total commercial and
industrial loans .. 119,523 312 -- 119,835 -- -- -- 151
---------------------------------------------------------------------------------------------
Consumer loans:
Direct ................... 9,162 17 4 9,183 4 -- 4 --
Indirect ................. 58,438 272 49 58,759 49 -- 49 --
CreditLine ............... 2,253 16 -- 2,269 -- -- -- --
---------------------------------------------------------------------------------------------
Total consumer loans . 69,853 305 53 70,211 53 -- 53 279
Unallocated reserve for loan
loss ..................... -- -- -- -- -- -- -- 3,709
---------------------------------------------------------------------------------------------
Total ................ $337,008 $ 1,139 $ 792 $338,939 $ 792 $ -- $ 792 $4,400
---------------------------------------------------------------------------------------------
</TABLE>
* Nonperforming loans are loans on which scheduled principal and/or interest
is past due 90 days or more and loans less than 90 days past due which are
deemed to be problem loans by management. Total nonperforming loans of
$792,000 includes the $792,000 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 included in nonperforming loans.
12
<PAGE>
The Bank's lending function is its principal income generating activity, and it
is the Bank's policy to continue to serve the credit needs of its market area.
Total loans at December 31, 1999 increased 21% to $338,939,000 from $281,185,000
as of December 31, 1998.
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 $30,467,000 or 34% from $89,368,000 at December 31, 1998 to
$119,835,000 at December 31, 1999. Increased business development in the Bank's
commercial lending market area, the addition of 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 22% or $23,960,000 during 1999, from
$110,535,000 at December 31, 1998, to $134,495,000 at December 31, 1999. This
growth was due primarily to a $10,427,000 or 66% increase in residential
mortgage loans, as the Bank decided to increase its outstanding balances of
residential mortgage loans. Home equity loans increased by $9,561,000 or 21%,
commercial mortgage loans increased by $3,972,000 or 8%.
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, increased $2,133,000 or 3%,
from $68,078,000 at December 31, 1998, to $70,211,000 at December 31, 1999.
While average outstanding consumer loan balances decreased by 4% during 1999,
during the later half of 1999, outstanding indirect automobile paper accounted
for the largest increase, growing $1,726,000 or 3% to $58,758,000 for December
31, 1999 compared to $57,032,000 at December 31, 1998. Competition from
automobile manufacturers' credit facilities and lower costing financing from
home equity loans continues to be a source of major competition for this
product.
As of December 31, 1999, the construction loan portfolio increased by $1,194,000
or 9%, from $13,204,000 at December 31, 1998, to $14,398,000 at December 31,
1999. As of December 31, 1998 and 1999, the construction lending portfolio had
neither non-performing loans nor any loans delinquent 30 days or more.
Deposits
The Bank attracts deposits from within its market area by offering various
deposit instruments, including savings accounts, NOW accounts, money market
accounts, and certificates of deposit.
Total deposits increased 8% to $371,068,000 at December 31, 1999, from
$342,357,000 at year-end 1998. A more meaningful measure of deposit change is
average daily balances. As illustrated in Table 12, average daily deposit
balances increased 9%. 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 deposits. As previously discussed, this
change in the mix of deposits, growing lower costing and non-interest bearing
deposits is primarily responsible for a 22 basis point decrease in the Bank's
overall cost of funds and a 13 basis point increase in the Bank's net interest
margin for 1999, compared to 1998.
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
(dollars in thousands) 1999 1998 1999 vs. 1998 1997 1998 vs. 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand deposits, non-
interest-bearing ........... $ 92,098 $ 82,773 11.3% $ 76,076 8.8%
----------------------------------------------------------------------
Market rate accounts ......... 49,871 44,325 12.5 45,903 (3.4)
NOW accounts ................. 93,769 85,317 9.9 73,958 15.4
Regular savings .............. 40,865 40,143 1.8 38,891 3.2
----------------------------------------------------------------------
184,505 169,785 8.7 158,752 6.9
----------------------------------------------------------------------
Time deposits ................ 65,000 61,503 5.7 73,792 (16.7)
----------------------------------------------------------------------
Total ...................... $341,603 $314,061 8.8 $308,620 1.8
----------------------------------------------------------------------
</TABLE>
The following table shows the maturity of certificates of deposit of $100,000 or
greater as of December 31, 1999:
Table 13 - Maturity of Certificates of Deposits of $100,000 or Greater
(in thousands)
Three months or less................................................. $15,751
Three to six months.................................................. 2,689
Six to twelve months................................................. 3,833
Greater than twelve months........................................... --
-------
Total............................................................ $22,273
-------
Capital Adequacy
At December 31, 1999, total shareholders' equity of the Corporation was
$46,719,000, a $4,498,000 or 11% increase over $42,221,000 at December 31, 1998.
Decreasing the addition to capital from earnings, less dividends for the year,
was the impact of SFAS No. 115. As of December 31, 1999, shareholders' equity
included unrealized losses on investment securities, net of deferred taxes, of
$389,000 compared to unrealized gains on investment securities, net of taxes, of
$100,000 at December 31, 1998. This change caused a $489,000 decrease to
shareholders' equity from December 31, 1998 to December 31, 1999.
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
13
<PAGE>
of credit and loan commitments, based on the associated risk.
The Bank's risk-based capital ratios at December 31, 1999 and 1998 are listed
below. These ratios are all in excess of the minimum required capital ratios,
also listed below.
TABLE 14 - Risk-based Capital Ratios
1999 1998
Minimum Minimum
ACTUAL Required Actual Required
------ -------- ------ --------
Tier I capital
ratio....................... 10.34% 4.00% 12.42% 4.00%
Total capital ratio............. 11.54 8.00 13.67 8.00
An increase in risk weighted assets at December 31, 1999, compared to last
year-end, combined with the effect of dividends paid to the Corporation during
1999 to fund both the Corporation's Stock Repurchase Program and the purchase of
JWR&Co. are the primary reasons for the decreases in both the Bank's Tier I and
Total Capital ratios from December 31, 1998 to December 31, 1999.
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, 1999 and 1998, 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, 1999. It is the Bank's policy to promptly place non-performing
loans on non-accrual 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, 1999.
Asset Quality
The Bank is committed to maintaining and developing quality assets. Loan growth
is generated primarily within the Bank's market area, which includes Montgomery,
Delaware, and Chester Counties, as well as portions of Bucks and Philadelphia
Counties. The development of quality loan growth is controlled through a uniform
lending policy that defines the lending functions and goals, loan approval
process, lending limits, and loan review.
Non-performing assets amounted to $792,000 at December 31, 1999, a 4% increase
from $764,000 at December 31, 1998. Non-performing loans were $792,000 at
December 31, 1999, a 61% increase from $493,000 at December 31, 1998. The
primary cause of this increase was the reinstatement of a loan to non-
performing status that had been included in the Bank's OREO at December 31,
1998. There were no OREO properties on the Bank's books as of December 31, 1999,
causing a $271,000 decrease in OREO balances from December 31, 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, 1999.
TABLE 15 - Nonperforming Assets
December 31
-------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------
(in thousands)
Loans past due 90 days
or more not on
nonaccrual status:
Real estate--mortgage ...... $ 19 $ 84 $ 72 $ 68 $ --
Consumer ................... 53 56 27 51 155
Loans on which the
accrual of interest
has been discontinued:
Commercial and
industrial .............. -- -- 347 76 339
Real estate--mortgage ...... 720 353 723 712 117
Real estate--
construction ............ -- -- -- -- --
-------------------------------------------
Total nonperforming
loans ................ 792 493 1,169 907 611
Other real estate owned
and in-substance
foreclosed
properties* ................ -- 271 25 1,523 3,794
-------------------------------------------
Total nonperforming
assets ............... $ 792 $ 764 $1,194 $2,430 $4,405
===========================================
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
$121,000 for the year ended December 31,
14
<PAGE>
1999. Interest earned and included in interest income on these loans prior to
their nonperforming status amounted to $448,000 in 1999.
* 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 non-accrual 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. The
methodology used to arrive at an appropriate allowance for loan loss involves a
high degree of management judgement and results in a range of estimated losses.
It is the goal of this loan loss reserve adequacy process to provide a loan loss
reserve sufficient to address the Bank's potential risk of loan losses, in the
existing loan portfolio, during various economic cycles. During the review of
the loan loss reserve, the Committee considers allocations of the loan loss
reserve on specific loans on a loan-by-loan basis, as well as considering
inherent loan losses in specific pools of similar loans, based on prior
historical write-off activity, geographic concentrations, industry
concentrations and economic factors. The sum of all analyzed loan components is
compared to the loan loss reserve balance, and any adjustments deemed necessary
to the loan loss reserve balance are made on a timely basis.
The Corporation is regulated and periodically inspected by The Federal Reserve
Board. In 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.
TABLE 16 - Interest Rate Sensitivity Analysis as of December 31, 1999
<TABLE>
<CAPTION>
REPRICING PERIODS
-----------------------------------------------------------------------------------------
0 to 30 31 to 90 91 to 180 181 to 365 Over Non-rate
(dollars in thousands) Days Days Days Days 1 Year Sensitive Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits with other
banks ............................. $ 13,643 $ 47 $ -- $ -- $ -- $ -- $ 13,690
Federal funds sold .................. 17,609 -- -- -- -- -- 17,609
Investment securities ............... -- 500 -- 2,971 24,172 1,968 29,611
Loans ............................... 109,206 13,365 18,723 33,826 163,819 (4,400) 334,539
Cash and due from banks ............. -- -- -- -- -- 17,914 17,914
Other assets ........................ -- -- -- -- -- 14,771 14,771
-----------------------------------------------------------------------------------------
Total assets ...................... $ 140,458 $ 13,912 $ 18,723 $ 36,797 $ 187,991 $ 30,253 $ 428,134
-----------------------------------------------------------------------------------------
Liabilities and shareholders' equity:
Demand, noninterest-bearing ......... $ -- $ -- $ -- $ -- $ -- $ 100,485 $ 100,485
Savings deposits .................... 72,772 -- -- -- 121,286 -- 194,058
Time deposits ....................... 17,443 9,222 12,065 23,303 16,187 -- 78,220
Other liabilities ................... 10,000 -- -- -- -- 7,884 17,884
Shareholders' equity ................ -- -- -- -- -- 37,487 37,487
-----------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity .......................... $ 100,215 $ 9,222 $ 12,065 $ 23,303 $ 137,473 $ 145,856 $ 428,134
-----------------------------------------------------------------------------------------
Gap .................................... $ 40,243 $ 4,690 $ 6,658 $ 13,494 $ 50,518 ($115,603) --
Cumulative gap ......................... $ 40,243 $ 44,933 $ 51,591 $ 65,085 $ 115,603 -- --
Cumulative earning assets as a ratio of
interest bearing liabilities ........ 140% 141% 142% 145% 141% -- --
</TABLE>
15
<PAGE>
The Bank uses income simulation models to measure its interest rate risk and to
manage its interest rate sensitivity. The simulation models consider not only
the impact of changes in interest rates on forecasted net interest income, but
also such factors as yield curve relationships, possible loan prepayments, and
deposit withdrawals. As of year-end 1999, 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 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 1999, cash provided by operations amounted to $8,157,000 and was
primarily derived from net income of $7,961,000 for 1999. Cash used for
investing activities amounted to $38,127,000. Investment activity provided
$20,627,000 in cash, as the balance in the investment portfolio decreased by 42%
at December 31, 1999, compared to December 31, 1998. Loan activity, including
the purchase of $33,951,000 in indirect automobile paper, used $55,679,000 in
funds during 1999. The cash portion of the cost of acquiring the New
Acquisitions amounted to $1,975,000. The cost of premises' improvements and the
purchase of equipment used $1,104,000.
Offsetting the decrease in funds from investing activities was an increase in
funds from the Bank's financing activities, which provided $33,851,000 in net
cash, primarily the result of a $14,216,000 net increase in outstanding
non-interest-bearing demand and savings related deposits, along with a
$14,465,000 increase in time deposits. The Bank also borrowed $10,000,000,
primarily for liquidity purposes, from the FHLB.
The Corporation used $30,000 in repayment of its mortgage debt. The Corporation
received $303,000 in proceeds from the issuance of common stock, related to
stock option exercises and used $2,530,000 to repurchase, pursuant to the Stock
Repurchase Program, common stock and $2,603,000 to pay the dividend in 1999. The
Corporation's cash and cash equivalents increased from December 31, 1998, to
December 31, 1999, by $3,881,000, from $45,332,000 at December 31, 1998 to
$49,213,000 at December 31, 1999.
OTHER
- --------------------------------------------------------------------------------
Year 2000
During the past two years, the Corporation organized a Year 2000 ("Y2K") team
(the "Team") to implement a plan assuring that all internal systems, borrowers
and vendors were Y2K compliant. The Team successfully met its goals. The
conversion from 1999 to the year 2000 was an uneventful one for the Corporation,
its subsidiaries, as well as its borrowers and vendors. With minor exceptions,
all systems were properly working at the commencement of business on January 3,
2000.
The cost of Y2K compliance for the Corporation amounted to $585,000.
16
<PAGE>
1998 vs. 1997 Results of Operations
Net Income
Net income for the year ended December 31, 1998, was $6,857,000, a 12% increase
over net income of $6,130,000 for the year ended December 31, 1997. Basic
earnings per share rose from $1.38 in 1997 to $1.58 in 1998. Earnings per
share-assuming dilution was $1.33 for 1997 compared to $1.51 in 1998. In 1997,
the Corporation paid dividends of $0.36 per share. In 1998, the Corporation paid
dividends of $0.465 per share.
Return on average assets was 1.74% for 1997 compared to 1.91% in 1998. Return on
average equity was 16.45% in 1997 versus 17.06% in 1998.
Net Interest Income
A 4% increase in average earning assets, from 1997 to 1998, was primarily
responsible of a $1,122,000 or a 4% rise in interest income.
Interest expense decreased 14% or $953,000 from 1997 to 1998. The primary reason
for this decrease was a 17% decrease in average outstanding higher costing CDs.
Net interest income increased 12%, while the net interest margin increased from
5.59% for 1997 to 5.99% for 1998.
Loan Loss Provision
The provision for loan losses amounted to $200,000 for 1997 and was decreased to
$150,000 for 1998. The allowance for possible loan losses as a percentage of
non-performing loans amounted to 349% and 832% as of December 31, 1997 and 1998,
respectively. The ratio of the allowance for possible loan losses to total
outstanding loans was 1.52% and 1.46% at December 31, 1997 and 1998,
respectively.
Other Income
Other income increased 25% in 1998 from 1997 levels. Fees for Investment
Management and Trust services increased $1,574,000 or 20%. Net gains on the sale
of mortgage loans increased $548,000 or 48%, due primarily to an increase in the
sale of residential mortgage loans to the secondary mortgage market, from
$75,874,000 in 1997 compared to $134,676,000 in 1998.
Other Expenses
Other expenses increased by $3,858,000 or 19% in 1998 over 1997. Regular
salaries increased $1,685,000 or 20%, due primarily to merit increases and
staffing additions, including the establishment of TCBM in July 1997 and ICBM in
January 1998. Salaries-other, primarily incentive based, increased $720,000 or
44%. Increases in incentive based compensation, tied to overall profitability of
the Bank's lines of business accounted for this increase.
Employee benefit costs increased by $117,000 or 7%. Decreases in the cost of
post-retirement benefits of $242,000 and $170,000 in pension costs were offset
by increases of $398,000, $111,000 and $66,000 in social security tax expense,
medical and life insurance premiums and the Corporation's supplemental employee
retirement plan, respectively.
The $252,000 or 16% increase in furniture, fixtures and equipment expense was
primarily due to the additional depreciation on fixed assets.
Advertising increased $214,000 or 20%, reflecting the establishment of new
marketing initiatives.
The cost of merchant credit card processing increased $76,000 or 19%, as the
volume of merchant processing increased.
Insurance, including the Corporation's business coverage premiums and FDIC
deposit insurance premiums, increased by $25,000 or 13% in 1998 compared to 1997
levels. FDIC insurance premiums remained level from 1997 levels. The cost of the
Corporation's insurance coverage increased, partially reflecting the addition of
TCBM and ICBM in 1998 for a full year.
Other operating expenses increased $738,000 or 30% from 1997 to 1998. Appraisal
fees, directly related to the growth in mortgage banking activity, increased by
$130,000 over 1997 levels. The cost of Y2K compliance increased by $79,000 over
1997 and travel and entertainment expense grew by $70,000.
Income Taxes
The income tax provision for 1998 was $3,480,000, or a 33.7% effective rate,
compared to $2,950,000, or a 32.5% effective rate, for 1997.
17
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands)
As of December 31, 1999 1998*
--------------------------
<S> <C> <C>
Assets
- ------
Cash and due from banks ........................................................ $ 17,914 $ 19,810
Interest-bearing deposits with other banks ..................................... 13,793 5,166
Federal funds sold ............................................................. 17,609 20,372
Investment securities available for sale, at market value
(amortized cost of $30,201,000 and $50,808,000 at December 31, 1999 and 1998,
respectively) ................................................................ 29,611 50,960
Loans .......................................................................... 338,939 281,185
Less: Allowance for possible loan losses ................................... (4,400) (4,100)
--------------------------
Net loans ............................................................... 334,539 277,085
--------------------------
Premises and equipment, net .................................................... 11,880 12,209
Accrued interest receivable .................................................... 2,411 2,069
Goodwill ....................................................................... 3,294 --
Deferred federal income taxes .................................................. 1,440 1,086
Other real estate owned ........................................................ -- 271
Other assets ................................................................... 4,329 2,812
--------------------------
Total assets ............................................................... $436,820 $391,840
--------------------------
Liabilities
- -----------
Deposits:
Demand, noninterest-bearing .................................................. $ 98,790 $ 88,937
Savings ...................................................................... 194,057 189,695
Time ......................................................................... 78,221 63,725
--------------------------
Total deposits .......................................................... 371,068 342,357
Short term borrowings .......................................................... 10,000 --
Other liabilities .............................................................. 9,033 7,262
--------------------------
Total liabilities .......................................................... 390,101 349,619
--------------------------
Commitments and contingencies (Note 14)
Shareholders' Equity
- --------------------
Common stock, par value $1,
authorized, 25,000,000 shares, issued 5,179,608 shares and 5,067,078 shares as
of December 31, 1999 and 1998, respectively, and outstanding 4,323,250 shares
and 4,303,818 shares as of December 31, 1999
and 1998, respectively ....................................................... 5,180 5,067
Paid-in capital in excess of par value ......................................... 4,467 2,478
Unrealized investment (depreciation) appreciation, net of deferred income taxes (389) 100
Retained earnings .............................................................. 45,149 39,791
--------------------------
54,407 47,436
Less: Common stock in treasury, at cost -- 856,358 and 763,260
shares at December 31, 1999 and 1998, respectively ........................... (7,688) (5,215)
--------------------------
Total shareholders' equity .............................................. 46,719 42,221
--------------------------
Total liabilities and shareholders' equity .............................. $436,820 $391,840
--------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
18
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
(in thousands, except for share and per share data)
For the years ended December 31, 1999 1998* 1997*
----------------------------------------------
<S> <C> <C> <C>
Net interest income:
Interest income:
Interest and fees on loans ...................... $ 25,724 $ 23,085 $ 21,746
Interest on federal funds sold .................. 609 824 935
Interest and dividends on investment securities:
Taxable interest income ....................... 1,702 1,864 1,916
Tax-exempt interest income .................... 183 224 283
Dividend income ............................... 99 85 80
----------------------------------------------
Total interest income ...................... 28,317 26,082 24,960
Interest expense .................................. 5,857 5,976 6,929
----------------------------------------------
Net interest income ............................... 22,460 20,106 18,031
Loan loss provision ............................... 250 150 200
----------------------------------------------
Net interest income after loan loss provision ..... 22,210 19,956 17,831
----------------------------------------------
Other income:
Fees for investment management and trust services 9,784 9,272 7,698
Service charges on deposit accounts ............. 1,156 1,169 1,124
Other fees and service charges .................. 1,333 1,272 1,090
Net gain on sale of loans ....................... 1,028 1,682 1,134
Gain on sale of other real estate owned ......... 45 224 379
Fees earned from family business office services 1,947 -- --
Investment advisory and brokerage fees .......... 1,218 -- --
Tax consulting fees ............................. 702 655 134
Insurance commission income ..................... 326 188 --
Other operating income .......................... 1,071 614 527
----------------------------------------------
Total other income ............................ 18,610 15,076 12,086
----------------------------------------------
Other expenses:
Salaries-regular ................................ 12,446 10,289 8,604
Salaries-other .................................. 2,226 2,375 1,655
Employee benefits ............................... 2,334 1,908 1,791
Occupancy expense ............................... 1,928 1,392 1,365
Furniture, fixtures, and equipment .............. 1,968 1,817 1,565
Advertising ..................................... 1,290 1,283 1,069
Professional fees ............................... 1,148 811 822
Computer processing ............................. 560 569 584
Merchant credit card processing ................. 524 466 390
Stationery and supplies ......................... 408 354 322
Insurance ....................................... 373 213 188
Goodwill amortization ........................... 183 -- --
Net cost of operation of other real estate owned 8 7 9
Other operating expenses ........................ 3,584 3,211 2,473
----------------------------------------------
Total other expenses .......................... 28,980 24,695 20,837
----------------------------------------------
Income before income taxes ........................ 11,840 10,337 9,080
Applicable income taxes ........................... 3,879 3,480 2,950
----------------------------------------------
Net income ........................................ $ 7,961 $ 6,857 $ 6,130
----------------------------------------------
Earnings per common share ......................... $ 1.83 $ 1.58 $ 1.40
Earnings per common share-assuming dilution ....... $ 1.75 $ 1.51 $ 1.33
Weighted-average shares outstanding ............... 4,349,403 4,327,297 4,392,162
Dilutive potential common shares .................. 193,915 225,708 203,660
----------------------------------------------
Adjusted weighted-average shares .................. 4,543,318 4,553,005 4,595,822
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
19
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(in thousands)
For the years ended DECEMBER 31, 1999 1998* 1997*
-------------------------------------
<S> <C> <C> <C>
Operating activities:
- ---------------------
Net income ...................................................................... $ 7,961 $ 6,857 $ 6,130
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ..................................................... 250 150 200
Provision for depreciation and amortization ................................... 1,319 1,333 1,091
Loans originated for resale ................................................... (75,502) (132,175) (78,407)
Proceeds from sale of loans ................................................... 74,505 135,494 75,874
Net gain on sale of loans ..................................................... (1,028) (1,682) (509)
Net gain on disposal of other real estate owned ............................... (45) (224) (379)
Provision for deferred income taxes ........................................... (197) (20) 194
Change in income taxes payable/refundable ..................................... 1,624 (405) --
Change in accrued interest receivable ......................................... (342) (30) 125
Change in accrued interest payable ............................................ 179 207 (345)
Other ......................................................................... (567) 496 1,485
-------------------------------------
Net cash provided by operating activities ..................................... 8,157 10,001 5,459
-------------------------------------
Investing activities:
- ---------------------
Purchases of investment securities .............................................. (42,553) (36,683) (30,013)
Proceeds from maturities of investment securities ............................... 57,180 11,415 15,200
Proceeds from sales of investment securities available for sale ................. -- -- 27
Proceeds from calls of investment securities .................................... 6,000 15,002 8,955
Proceeds on disposition of other real estate owned .............................. 45 249 1,879
Purchase of other real estate owned ............................................. -- (271) --
Capitalization of costs of other real estate owned .............................. (41) -- (2)
Net loan (originations) repayments .............................................. (21,728) 10,954 26,462
Purchase of automobile retail installment contracts ............................. (33,951) (26,206) (32,859)
Cost of acquiring new subsidiaries .............................................. (1,975) -- --
Purchases of premises and equipment ............................................. (1,104) (1,737) (1,542)
-------------------------------------
Net cash used in investing activities ......................................... (38,127) (27,277) (11,893)
-------------------------------------
Financing activities:
- ---------------------
Change in demand and savings deposits ........................................... 14,216 11,705 22,622
Change in time deposits ......................................................... 14,495 1,846 3,001
Dividends paid .................................................................. (2,603) (2,012) (1,583)
Repayment of mortgage debt ...................................................... (30) (26) (1,809)
Proceeds from issuance of common stock .......................................... 303 432 260
Proceeds from borrowed funds .................................................... 10,000 -- --
Purchase of treasury stock ...................................................... (2,530) (2,519) (1,329)
-------------------------------------
Net cash provided by financing activities ..................................... 33,851 9,426 21,162
-------------------------------------
Change in cash and cash equivalents ............................................. 3,881 (7,850) 14,728
Cash and cash equivalents at beginning of year .................................. 45,332 53,182 38,454
-------------------------------------
Cash and cash equivalents at end of year ........................................ $ 49,213 $ 45,332 $ 53,182
-------------------------------------
Supplemental cash flow information:
- -----------------------------------
Cash paid during the year for:
Income taxes .................................................................. $ 2,300 $ 3,861 $ 2,153
Interest ...................................................................... 5,734 5,827 6,955
Non-cash investing activities:
- ------------------------------
Common stock issued for business acquisition:
Joseph W. Roskos & Company .................................................... $ 2,000 -- --
CDC Capital Management, Inc. .................................................. 281 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
20
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
(in thousands, except for shares of common stock)
Shares of Unrealized
Common Common Paid-in Retained Gains Treasury
For the years ended December 31, 1999, 1998 and 1997 Stock issued Stock Capital Earnings (Losses) Stock
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
Net income ............................................... -- -- -- 7,961 -- --
Dividends declared, $0.60 per share ...................... -- -- -- (2,603) -- --
Change in unrealized gains (losses), net of income taxes
of ($252,000) .......................................... -- -- -- -- (489) --
Tax benefit from gains on stock option exercise .......... -- -- 213 -- -- --
Purchase of treasury stock ............................... -- -- -- -- -- (2,530)
Retirement of treasury stock ............................. (11,059) (11) (241) -- -- 57
Common stock issued ...................................... 123,589 124 2,017 -- -- --
-------------------------------------------------------------------------
Balance, December 31, 1999 ............................... 5,179,608 $5,180 $4,467 $45,149 ($ 389) ($ 7,688)
-------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
(in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Net income ................................................................. $ 7,961 $ 6,857 $ 6,130
Other comprehensive income:
Unrealized holding (losses) gains arising during the period .............. (741) 59 94
Deferred income tax benefit (expense) on unrealized holding gains (losses)
arising during the period ............................................. 252 (21) (31)
-------------------------------
COMPREHENSIVE NET INCOME ................................................... $ 7,472 $ 6,895 $ 6,193
-------------------------------
</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
Counselors of Bryn Mawr Inc. ("TCBM"), Insurance Counselors of Bryn Mawr, Inc.
("ICBM"), Bryn Mawr Brokerage Company, Inc. ("BM Brokerage"), CDC Capital
Management, Inc. ("CDC") and Joseph W. Roskos & Co. ("JWR&Co."). 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 $3,106,000 and $4,909,000 at December 31, 1999
and 1998, 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, 1999, shareholders' equity was decreased by
$389,000 due to unrealized losses (net of $201,000 in deferred income tax
benefits) of $590,000 in the investment securities portfolio. 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.
Loans:
Interest income on loans performing satisfactorily is recognized on the accrual
method of accounting. Non-performing 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 non-performing
loans, except consumer loans, are placed on non-accrual status, and any
outstanding interest receivable at the time the loan is deemed non-performing is
deducted from interest income. Consumer loan principal and interest balances
deemed uncollectable are charged off on a timely basis against the loan loss
reserve. The charge-off policy for all loans, including non-performing 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 non-performing and impaired loan. All of the Corporation's
impaired loans, which amounted to $720,000 and $1,718,000 at December 31, 1999
and 1998, respectively, were put on a non-accrual basis and any outstanding
accrued interest receivable on such loans, at the time they were put on a
non-accrual 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, 1999 and 1998, no impaired loans were measured using the present
value of expected future cash flows or at the
23
<PAGE>
loan's market price. Impaired loans measured by the fair value of the loan's
collateral amounted to $720,000 and $1,718,000, respectively. If the loan
valuation is less than the recorded value of the loan, an impairment reserve is
established for the difference. As of December 31, 1999 and 1998, there were
$679,000 and $935,000, 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, 1999 and 1998 was $110,000 and $300,000,
respectively. Impaired loans for which no loan loss allowance was allocated
amounted to $41,000 and $783,000 at December 31, 1999 and 1998. Average impaired
loans during both 1999 and 1998 amounted to $1,088,000 and $2,820,000,
respectively.
When a loan is classified as impaired, it is put on non-accrual 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 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 interest and principal. Subsequent income recognition would be recorded
under the existing terms of the loan. Based on the above criteria, $1,283,000 in
loan balances were removed from impaired status and returned to accrual status
during 1999, while no loans considered impaired were removed from impaired
status during 1998.
Smaller balance, homogeneous loans, exclusively consumer loans, when included in
non-performing loans, for practical consideration, are not put on a non-accrual
status nor is the current accrued interest receivable reversed from income. Once
deemed uncollectable, these outstanding loan and accumulated interest balances
are charged off through the loan loss reserve, on a timely basis.
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 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.
Goodwill:
The excess of cost over fair market value of net assets acquired through the
purchase method of accounting (Goodwill) is being amortized on a straight-line
basis
24
<PAGE>
over the period of the expected benefit, which ranges from 10 to 20 years. It is
Corporation policy that, if any expected benefit from an acquisition becomes
impaired, the respective goodwill amount will be charged-off in the period of
impairment.
Recently issued accounting standards:
In June 1998, Statement of Financial Accounting Standard No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133) was issued and
subsequently amended by Statement of Financial Accounting Standard No. 137
"Accounting of Derivative Instruments and Hedging Activities--Deferral of the
effective date of FASB statement No. 133" ("SFAS No. 137").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 as amended by SEAS No. 137
is effective for all fiscal quarters beginning after June 15, 2000. The
Corporation does not own any derivative instruments and does not engage in
hedging activities. These statements will not have a material impact on the
financial condition or results of operations of the Corporation.
3. Investment Securities:
- -------------------------
The amortized cost and estimated market value of investments, all of which were
classified as available for sale, are as follows:
As of December 31, 1999:
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
---------------------------------------------
Obligations of the U.S.
Government and
agencies ................. $25,017 $ -- $ 593 $24,424
State and political
subdivisions ............. 3,230 4 15 3,219
Other securities ............. 1,954 14 -- 1,968
---------------------------------------------
Total .................... $30,201 $ 18 $ 608 $29,611
=============================================
As of December 31, 1998:
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
---------------------------------------------
Obligations of the U.S.
Government and
agencies ................. $44,838 $ 99 $ 26 $44,911
State and political
subdivisions ............. 4,612 62 -- 4,674
Other securities ............. 1,358 17 -- 1,375
---------------------------------------------
Total .................... $50,808 $ 178 $ 26 $50,960
=============================================
At December 31, 1999, securities having a book value of $10,525,000 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, 1999, 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.
1999
--------------------------
Estimated
Amortized Market
(in thousands) Cost Value
--------------------------
Due in one year or less .......................... $ 3,475 $ 3,471
Due after one year through five years ............ 24,772 24,172
Due after five years through ten years ........... -- --
Due after ten years .............................. -- --
Other securities ................................. 1,954 1,968
--------------------------
Total ........................................ $ 30,201 $ 29,611
==========================
There were no sales of debt securities during 1999, 1998 or 1997.
4. Loans:
- ---------
Loans outstanding at December 31 are detailed by category as follows:
(in thousands) 1999 1998
--------------------------
Real estate loans:
Permanent mortgage loans ..................... $ 134,960 $ 110,963
Construction loans ........................... 14,496 13,295
Commercial and industrial loans .................. 119,835 89,368
Loans to individuals for household,
family, and other consumer
expenditures ................................. 70,211 68,078
--------------------------
Subtotal ......................................... 339,502 281,704
Less: Allowance for loan losses .................. (4,400) (4,100)
Net deferred loan fees ..................... (563) (519)
--------------------------
Loans, net ................................... $ 334,539 $ 277,085
--------------------------
Unadvanced loan funds ............................ $ 113,682 $ 85,775
Loans with predetermined rates ................... 187,413 165,468
Loans with adjustable or floating
rates ........................................ 151,526 115,717
--------------------------
Total ........................................ $ 338,939 $ 281,185
==========================
All loans past due 90 days or more, except consumer loans, are placed on
nonaccrual status. Nonperforming loans amounted to $792,000 and $493,000 at
December 31, 1999 and 1998, respectively. Forgone interest on nonaccrual loans
was $121,000, $230,000, and $298,000 in 1999, 1998, and 1997, respectively.
During 1999, four loans, previously classified as impaired, were returned to
performing status, adding $448,000 in interest income in 1999.
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) 1999 1998 1997
-------------------------------
Balance, January 1 ......................... $ 4,100 $ 4,074 $ 4,182
Charge-offs ................................ (197) (243) (433)
Recoveries ................................. 247 119 125
-------------------------------
Net recoveries / (charge-offs) ......... 50 (124) (308)
Loan loss provision ........................ 250 150 200
-------------------------------
Balance, December 31 ....................... $ 4,400 $ 4,100 $ 4,074
===============================
6. Premises and Equipment:
- --------------------------
A summary of premises and equipment at December 31, is as follows:
(in thousands) 1999 1998*
--------------------
Land ................................................. $ 2,973 $ 2,973
Buildings ............................................ 11,439 11,407
Furniture and equipment .............................. 11,484 10,362
Leasehold improvements ............................... 494 389
--------------------
26,390 25,131
Less accumulated depreciation ........................ 14,510 12,922
--------------------
Total ............................................ $11,880 $12,209
====================
*Reclassified for comparative purposes.
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
amounted to $1,285,000, $1,221,000 and $988,000, respectively. Future minimum
rent commitments (in thousands) under the operating lease is as follows:
2000........................................... $223,200
2001........................................... 223,200
2002........................................... 223,200
2003........................................... 223,200
2004........................................... 247,872
Thereafter..................................... 6,215,693
The lease contains options to extend for one 10 year period. The cost of such
rentals is not included in the above. Total rent expense for the year ended
December 31, 1999, amounted to $186,000. There was no such rental expense in
1998 and 1997.
As of December 31, 1999, the Corporation has borrowings outstanding of $638,000.
The borrowings are collateralized by a property with a book value of $1,651,000.
The weighted average interest rate on the borrowings was 8.50% and 8.50% in 1999
and 1998, respectively.
7. Deposits:
- ------------
Following is a summary of deposits as of December 31:
1999 1998
---------------------
Regular savings ...................................... $ 43,186 $ 40,307
NOW accounts ......................................... 98,834 101,226
Money market accounts ................................ 52,037 48,162
Time deposits (less than $100,000) ................... 55,947 47,201
Time deposits, $100,000 or more ...................... 22,274 16,524
---------------------
Total interest-bearing deposits .................. 272,278 253,420
Non-interest-bearing deposits ........................ 98,790 88,937
---------------------
Total deposits ................................... $371,068 $342,357
=====================
The aggregate amount of deposit overdrafts included as loans as of December 31,
1999 and 1998 were $37,000 and $161,000, respectively.
Maturity of certificates of deposit:
$100,000 Less than
Maturing during: or more $100,000
----------------------
2000 ............................................. $20,560 $41,473
2001 ............................................. 1,714 12,842
2002 ............................................. -- 1,058
2003 ............................................. -- 334
2004 and thereafter .............................. -- 240
---------------------
Total ........................................ $22,274 $55,947
=====================
8. Short Term Borrowings:
- -------------------------
The Bank had outstanding short term borrowings from the Federal Home Loan Bank
of Pittsburgh of $10,000,000 as of December 31, 1999 with an interest rate of
5.86%, maturing in January, 2000. No such borrowings were outstanding as of
December 31, 1998.
9. 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
26
<PAGE>
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
prices, where available.
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.
Short Term Borrowings:
Due to the short term nature of the maturities the carrying amount of the
borrowings approximates the fair value.
Other liabilities:
Estimated fair values of long term mortgages, collateralized by one property
included in premises and equipment, are based on discounted cash flow analyses,
using interest rates currently being offered for similar types of loans and
amortizing the loan under existing amortization tables for each loan.
Off-balance sheet instruments:
Estimated fair values of the Corporation's off-balance sheet instruments
(standby letters of credit and loan commitments) are based on fees currently
charged to enter into similar loan agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing. Since fees and
rates charged for off-balance sheet items are at market levels when set, there
is no material difference between the stated amount and estimated fair values of
off-balance sheet instruments.
The carrying amount and estimated fair value of the Corporation's financial
instruments at December 31 are as follows:
1999 1998
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
----------------------------------------------
Financial assets:
Cash and due from
banks ................ $ 17,914 $ 17,914 $ 19,810 $ 19,810
Interest-bearing
deposits with
other banks .......... 13,690 13,690 5,151 5,151
Federal funds
sold ................. 17,609 17,609 20,372 20,372
Investment
securities ........... 29,714 29,714 50,976 50,976
Net loans ............... 334,539 337,071 277,085 283,265
----------------------------------------------
Total financial
assets ............ $413,466 $415,998 $373,394 $379,574
----------------------------------------------
Financial liabilities:
Deposits ................ $371,068 $370,704 $342,357 $342,465
Short term
borrowings ........... 10,000 10,000 -- --
Other
liabilities .......... 638 638 668 708
----------------------------------------------
Total financial
liabilities ....... $381,706 $381,342 $343,025 $343,173
==============================================
Off-balance sheet
instruments ............. $121,564 $121,564 $ 92,920 $ 92,920
==============================================
27
<PAGE>
10. Applicable Federal Income Taxes:
- ------------------------------------
The components of the net deferred tax asset as of December 31 are as follows:
(in thousands) 1999 1998
-------------------
Deferred tax assets:
Loan loss reserve ................................ $ 790 $ 722
Pension and other postretirement
benefits ...................................... 307 281
Deferred compensation ............................ 257 273
Other reserves ................................... 138 251
Unrealized depreciation on investment
securities .................................... 201 --
-------------------
1,693 1,527
Deferred tax liabilities:
Depreciation ..................................... (253) (389)
Unrealized appreciation on investment
securities .................................... -- (52)
-------------------
Total net deferred tax assets ........................ $ 1,440 $ 1,086
===================
No valuation allowance was recorded as of December 31, 1999 and 1998.
The provisions for federal income taxes consist of the following:
(in thousands) 1999 1998 1997
---------------------------------
Currently payable ...................... $ 4,076 $ 3,286 $ 2,756
Deferred ............................... (197) 194 194
---------------------------------
Total .............................. $ 3,879 $ 3,480 $ 2,950
---------------------------------
Applicable federal income taxes differed from the amount derived by applying
the statutory federal tax rate to income as follows:
(in thousands) 1999 1998 1997
---------------------------------
Tax expense at statutory rate .......... $ 4,026 $ 3,515 $ 3,087
Benefit reductions in taxes
resulting from tax-exempt
income ............................. (164) (334) (113)
Other, net ............................. 17 299 (24)
---------------------------------
Actual tax expense ..................... $ 3,879 $ 3,480 $ 2,950
---------------------------------
28
<PAGE>
11. 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'
benefits obligation and fair value of assets over the two-year period ending
December 31, 1999, and a statement of funded status as of December 31 of both
years:
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Benefits
--------------------------------------------------
(Dollars in thousands) 1999 1998 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation of Benefit Obligation and Plan Assets
- ----------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 .............................. $ 14,746 $ 12,623 $ 1,327 $ 2,366
Service cost ................................................. 927 701 7 9
Interest cost ................................................ 1,078 900 83 141
Amendments ................................................... 232 50 0 (1,390)
Actuarial (gain) loss ........................................ (924) 881 (180) 390
Benefits paid ................................................ (468) (409) (105) (189)
--------------------------------------------------
Benefit obligation at December 31 ............................ $ 15,591 $ 14,746 $ 1,132 $ 1,327
--------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 ....................... $ 20,698 $ 17,527 $ 0 $ 0
Actual return on plan assets ................................. 3,146 3,580 0 0
Employer contribution ........................................ 0 0 105 189
Benefits paid ................................................ (468) (409) (105) (189)
--------------------------------------------------
Fair value of plan assets at December 31 ..................... $ 23,376 $ 20,698 $ 0 $ 0
--------------------------------------------------
<CAPTION>
Funded Status Reconciliation and Key Assumptions
- ------------------------------------------------
Postretirement
Pension Benefits Benefits
--------------------------------------------------
(Dollars in thousands) 1999 1998 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation of funded status
Funded Status ................................................ $ 7,785 $ 5,952 $ (1,132) $ (1,327)
Unrecognized net actuarial (gain) loss ....................... (9,117) (6,476) 247 452
Unrecognized prior service cost .............................. 1,127 324 0 0
Unrecognized transition obligation (asset) ................... 0 0 337 363
--------------------------------------------------
Prepaid (accrued) benefit cost ............................... $ (205) $ (200) $ (548) $ (512)
--------------------------------------------------
Amounts recognized in financial statements consists of:
Prepaid benefit cost/(Accrued benefit liability) ............. $ (205) $ (200) $ (548) $ (512)
Intangible asset ............................................. 9 0 0 0
--------------------------------------------------
Net amount recognized ........................................ $ (214) $ (200) $ (548) $ (512)
--------------------------------------------------
</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 $1,383,952 as of December 31, 1999
and $897,197 as of December 31, 1998. 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 $1,132,282 as of December 31, 1999 and $1,326,728 as of
December 31, 1998.
The assumptions used in the measurement of the Corporation's benefit obligation
are shown on the following table:
Weighted-average assumptions as of end of year
Discount rate ...................... 8.00% 6.75% 8.00% 6.75%
Expected return on plan assets ..... 8.50% 8.25% N/A N/A
Rate of compensation increase ...... 5.00% 5.00% N/A N/A
The assumed health care cost trend rate for 1999 and thereafter is 6%.
29
<PAGE>
The following table provides the components of net periodic cost (income) for
the plans for years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost .................................... $ 927 $ 701 $ 555 $ 7 $ 9 $ 11
Interest cost ................................... 1,078 900 790 83 141 165
Expected return on plan assets .................. (1,739) (1,428) (1,144) 0 0 0
Amortization of prior service cost .............. 158 52 38 0 0 0
Amortization of transition obligation (asset) ... 0 0 0 25 78 122
Amortization of net actuarial (gain) loss ....... (418) (375) (266) 25 17 0
------------------------------------------------------------
Net periodic benefit cost ....................... $ 6 $ (150) (27) $ 140 $ 245 $ 298
============================================================
</TABLE>
Sensitivity Analysis, Postretirement Benefits
- ---------------------------------------------
<TABLE>
<CAPTION>
1-percentage 1-percentage
Point Increase Point Decrease
--------------------------------
<S> <C> <C>
Effect on total of service and interest cost components....... $5,902 $(5,403)
Effect on accumulated postretirement benefit obligation....... 73,598 (67,937)
</TABLE>
12. Stock Option Plan:
- ----------------------
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 1999, 1998 and 1997,
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:
1999 1998 1997
---------------------------------
Net income - as reported .................. $7,961 $6,857 $6,130
Net Income pro forma ...................... 7,636 6,373 6,003
Basic earnings per share - as
reported .............................. $ 1.83 $ 1.58 $ 1.40
Basic earnings per share - pro
forma ................................. $ 1.76 $ 1.47 $ 1.37
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 1997, 1998 and 1999: dividend yield of 2.50
percent, expected volatility of 21.7 percent, expected life of seven years and
risk-free interest rates of 7.1, 6.5 and 6.7 percent, respectively.
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 shareholders 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 was set at the last sale price
for the stock on the third business day following the Corporation's Annual
Meeting. Options totaling 76,000 shares of Corporation stock were issued under
the outside directors' plan. 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:
30
<PAGE>
<TABLE>
<CAPTION>
Shares Available Price Weighted
Under for per Average
Option Option Share Exercise Price
---------------------------------------------------------
<S> <C> <C> <C> <C>
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
Options granted ............... 73,400 (73,400) $ 26.44 $ 26.44
Options exercised ............. (40,200) -- -- --
Options cancelled ............. (10,000) 10,000 -- --
---------------------------------------------------------
Balance at December 31, 1999 ..... 429,280 83,326 $4.50 - $26.44 $ 14.08
---------------------------------------------------------
</TABLE>
Information pertaining to options outstanding at December 31, 1999 is as
follows:
Price range of shares under option at December 31, 1999:
<TABLE>
<CAPTION>
Shares Price Weighted Average Weighted Average Weighted Average
Under per Remaining Exercise Number Exercise
Option Share Contractual Life Price Exercisable Price
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
147,640 $ 4.50 - $7.94 2.38 $ 7.17 147,640 $ 7.17
114,440 $ 8.00 - $12.50 3.35 $ 8.83 114,440 $ 8.83
100,200 $16.91 - $24.50 8.17 $23.29 100,200 $23.29
67,000 $ 26.44 9.33 $24.50 -- --
--------------------------------------------------------------------------------------------------
Balance at December 31,
1999................... 429,280 $ 4.50 - $26.44 5.08 $14.08
</TABLE>
The weighted-average fair value of options granted during 1997, 1998 and 1999
were $13.99, $7.39 and $6.71, respectively.
The number of exercisable shares at December 31, 1997, 1998 and 1999 were
279,960, 388,480 and, 362,280, respectively, with respective weighted average
exercise prices of $8.39, $12.25 and $12.15.
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 $.07 per share, $.11 per share and $.03 per share dilutive effect
on earnings per share for the years ended December 31, 1999, 1998 and 1997,
respectively.
13. Related Party Transactions:
- -------------------------------
The Corporation had loans outstanding directly to executive officers, directors
and certain other related parties of $3,937,000 and $3,836,000 at December 31,
1999 and 1998, respectively.
Following is a summary of these transactions:
(in thousands) 1999 1998
-----------------
Balance, beginning of year.............................. $3,836 $3,506
Additions............................................... 627 1,173
Amounts collected....................................... (526) (843)
-----------------
Balance, end of year.................................... $3,937 $3,836
-----------------
Related party deposits amounted to $765,000 and $823,000 at December 31, 1999
and 1998, respectively.
31
<PAGE>
14. Financial Instruments with Off-balance Sheet Risk and Concentration of
- --------------------------------------------------------------------------
Credit Risk:
------------
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated statements of
financial condition. The contractual amounts of those instruments reflect the
extent of involvement the Corporation has in particular classes of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument of commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet financial
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the agreement. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Some of the commitments are expected to expire without
being drawn upon, and the total commitment amounts do not necessarily represent
future cash requirements. Total commitments to extend credit at December 31,
1999 are $113,682,000. 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 credit are issued to support
private borrowing arrangements. The credit risk involved in issuing standby
letters of credit is similar to that involved in extending loan facilities to
customers. The collateral varies, but may include accounts receivable,
marketable securities, inventory, property, plant and equipment, and residential
real estate for those commitments for which collateral is deemed necessary. The
Corporation's obligation under standby letters of credit as of December 31, 1999
amounted to $7,882,000. There were no outstanding bankers acceptances as of
December 31, 1999.
As of December 31, 1999, 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.
15. 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.
The financial statements of the Corporation are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Significant estimates are made by management in determining the allowance for
possible loan losses and the carrying value of other real estate owned.
Consideration is given to a variety of factors in establishing these estimates,
including current economic conditions, the results of the internal loan review
process, delinquency statistics, borrowers perceived financial and managerial
strengths, and the adequacy of supporting collateral, if collateral dependent,
or the present value of future cash flows. Since the allowance for possible loan
losses and the carrying value of other real estate owned are dependent, to a
great extent, on general and other economic conditions beyond the Bank's
control, it is at least reasonably possible that the estimates of the allowance
for possible loan losses and the carrying value of other real estate owned could
differ materially from currently reported values in the near term.
32
<PAGE>
16. Acquisitions:
- -----------------
The following acquisitions were accounted for under the purchase method of
accounting during 1999. Goodwill arising from these transactions has been
recorded on the balance sheet and is being amortized on a straight line basis
over a 10 to 20 year life. These acquisitions resulted in both the issuance of
common stock (non-cash investing) as well as the payment of cash. Following is a
description of each transaction.
<TABLE>
<CAPTION>
Number
Total Shares of of Shares
Method of Date of Purchase Common Issued or
Name of Company Acquired: Accounting Acquisition Price Cash Stock Issuable Goodwill
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CDC Capital Management, Purchase 1/06/99 $ 281,000 $ -- 281,000 10,375 $ 177,000
(Shares to be issued in
payment for the acquisition
are to be issued over a two
year time period.)
Joseph W. Roskos & Co. Purchase 1/01/99 $4,195,000 $2,195,000 2,000,000 74,697 $3,300,000
<CAPTION>
Amortization Amortized
Name Of Company Acquired: Period In 1999
------------------------
<S> <C> <C>
CDC Capital Management, 10 Years $18,000
(Shares to be issued in
payment for the acquisition
are to be issued over a two
year time period.)
Joseph W. Roskos & Co. 20 Years $165,000
</TABLE>
Both companies were acquired to enhance the number of financial products and
services already offered by the Corporation. CDC Capital Management is an
investment advisory management firm, allowing the Corporation to better
diversify its clients' investments. Joseph W. Roskos & Co. is a firm with family
business office services, including accounting, consulting, tax services and
fiduciary support to high-net-worth individuals and families.
17. Minimum Regulatory Capital Requirements:
- --------------------------------------------
Both the Corporation and the Bank are subject to various regulatory capital
requirements, administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if taken, could have a
direct material effect on the Corporations and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
As set forth in the following table, quantitative measures have been established
to ensure capital adequacy ratios required of both the Corporation and Bank,
specifically to define the minimum respective capital ratios as follows: total
capital to total assets (the leverage ratio) of 4%; Tier I capital to risk
weighted assets of 4% and Tier II capital to risk weighted assets of 8%. Both
the Corporation's and the Bank's Tier II capital ratios are calculated by adding
back a portion of the loan loss reserve to the Tier I capital. Management
believes, as of December 31, 1999 and 1998 that the Corporation and the Bank
have met all capital adequacy requirements to which they are subject. Federal
banking regulators have defined specific capital categories, based on an
institution's capital ratios. The categories range for a best of "well
capitalized" to a worst of "critically under capitalized." To be considered
"well capitalized", an institution must have a total (Tier II) capital ratio of
10% or better. Both the Corporation and the Bank have been classified as "well
capitalized" for both periods ending December 31, 1999 and 1998.
The Corporation's and the Bank's actual capital amounts and ratios as of
December 31, 1999 and 1998 are presented in the following table:
33
<PAGE>
<TABLE>
<CAPTION>
Minimum Capital Minimum to
Actual Requirement be Well
------------------ ------------------ Capitalized
Amount Ratio Amount Ratio Amount
------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Total (Tier II) Capital to Risk
Weighted Assets:
Consolidated ................................................. $48,214 12.19% 8.0% N/A
The Bank ..................................................... 42,277 11.54% $ 29,298 8.0% $36,623
Tier I Capital to Risk
Weighted Assets:
Consolidated ................................................. 43,814 11.08% 4.0% N/A
The Bank ..................................................... 37,877 10.34% 14,649 4.0% 21,974
Total Capital to Total
Assets (Leverage Ratio):
Consolidated ................................................. 46,719 10.70% 4.0% N/A
The Bank ..................................................... 37,487 8.76% 17,126 4.0% 21,408
DECEMBER 31, 1998
Total (Tier II) Capital to Risk
Weighted Assets:
Consolidated ................................................. 46,010 14.80% 8.0% N/A
The Bank ..................................................... 41,929 13.68% 24,877 8.0% 30,661
Tier I Capital to Risk
Weighted Assets:
Consolidated ................................................. 42,121 13.55% 4.0% N/A
The Bank ..................................................... 38,093 13.68% 12,439 4.0% 18,396
Total Capital to Total
Assets (Leverage Ratio):
Consolidated ................................................. 42,221 9.86% 4.0% N/A
The Bank ..................................................... 38,193 10.78% 15,502 4.0% 15,202
</TABLE>
18. Selected Quarterly Financial Data (Unaudited):
- --------------------------------------------------
<TABLE>
<CAPTION>
Quarters ending 1999
-------------------------------------------------
(in thousands, except per share data) 3/31 6/30 9/30 12/31
-------------------------------------------------
Interest income .................................................. $6,632 $7,197 $7,046 $7,442
Interest expense ................................................. 1,344 1,336 1,467 1,710
Net interest income .............................................. 5,288 5,861 5,579 5,732
Provision for loan losses ........................................ 63 62 62 63
Income before income taxes ....................................... 2,842 2,892 2,952 3,154
Net income ....................................................... 1,842 2,002 2,026 2,091
Earnings per common share ........................................ $ 0.42 $ 0.46 $ 0.47 $ 0.48
Earnings per common share - assuming dilution .................... $ 0.40 $ 0.44 $ 0.45 $ 0.46
<CAPTION>
Quarters ending 1998*
-------------------------------------------------
(In thousands, except per share data) 3/31 6/30 9/30 12/31
-------------------------------------------------
<S> <C> <C> <C> <C>
Interest income .................................................. $6,400 $6,494 $6,569 $6,619
Interest expense ................................................. 1,528 1,514 1,507 1,427
Net interest income .............................................. 4,872 4,980 5,062 5,192
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
</TABLE>
*Reclassified for comparative purposes.
34
<PAGE>
19. Condensed Financial Statements:
- -----------------------------------
The condensed financial statements of the Corporation (parent company only) as
of December 31, 1999 and 1998, and for each of the three years in the period
ended December 31, 1999, are as follows:
Condensed Balance Sheets
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---------------------
<S> <C> <C>
Assets:
Cash ............................................................................................. $ 701 $ 221
Investments in subsidiaries, at equity in net assets ............................................. 39,381 38,710
Premises and equipment, net ...................................................................... 3,958 4,056
Goodwill ......................................................................................... 3,294 --
Other assets ..................................................................................... 65 72
-- --
---------------------
Total assets .................................................................................. $47,399 $43,059
---------------------
Liabilities and shareholders' equity:
Mortgages payable ................................................................................ $ 638 $ 668
Other liabilities ................................................................................ 42 170
-- ---
---------------------
Total liabilities ............................................................................. 680 838
Common stock, par value $1, authorized 25,000,000 shares as of December 31, 1999 and 1998,
respectively, issued 5,179,608 shares and 5,067,078 shares as of December 31, 1999 and 1998,
respectively, and outstanding 4,323,250 shares and 4,303,818 shares as of December 31, 1999 and
1998, respectively ............................................................................... 5,180 5,067
Paid-in capital in excess of par value ............................................................... 4,467 2,478
Unrealized investment (depreciation), appreciation net of deferred income taxes ...................... (389) 100
Retained earnings .................................................................................... 45,149 39,791
Less common stock in treasury, at cost - 856,358 shares and 763,260 shares as of
December 31, 1999 and 1998 ....................................................................... (7,688) (5,215)
---------------------
Total shareholders' equity .................................................................... 46,719 42,221
---------------------
Total liabilities and shareholders' equity .................................................... $47,399 $43,059
---------------------
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Dividends from the Bryn Mawr Trust
Company ............................................................................ $8,052 $4,012 $5,359
Interest and other income .............................................................. 241 236 237
------------------------------------
Total operating income ............................................................. 8,293 4,248 5,596
Expenses ............................................................................... 730 677 360
------------------------------------
Income before equity in undistributed income of subsidiaries ........................... 7,563 3,571 5,236
Equity in undistributed income of subsidiaries ......................................... 294 3,136 852
------------------------------------
Income before income taxes ............................................................. 7,857 6,707 6,088
Federal income tax benefit ............................................................. 104 150 42
------------------------------------
Net income ............................................................................. $7,961 $6,857 $6,130
------------------------------------
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income ........................................................................ $7,961 $6,857 $6,130
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed losses of subsidiaries .................................... (294) (3,134) (852)
Depreciation expense .............................................................. 98 99 98
Amortization of goodwill .......................................................... 183 -- --
Other ............................................................................. 629 (3) (1)
------------------------------------
Net cash provided by operating activities ...................................... 8,577 3,819 5,375
Investing Activities:
Cost of acquiring subsidiaries .................................................... (2,195) -- --
Investment in Subsidiaries ........................................................ (1,041) (440) (75)
------------------------------------
Net cash used by investing activities .......................................... (3,236) (440) (75)
Financing activities:
Dividends paid .................................................................... (2,603) (2,012) (1,583)
Repayment of mortgage debt ........................................................ (30) (26) (1,809)
Repurchase of treasury stock ...................................................... (2,531) (2,519) (1,329)
Proceeds from issuance of stock ................................................... 303 432 260
------------------------------------
Net cash used by financing activities .......................................... (4,861) (4,125) (4,461)
------------------------------------
Change in cash and cash equivalents ................................................... 480 (746) 839
Cash and cash equivalents at beginning of year ........................................ 221 967 128
------------------------------------
Cash and cash equivalents at end of year .............................................. $ 701 $ 221 $ 967
------------------------------------
</TABLE>
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, 1999, the Bank's retained earnings
amounted to $31,286,000. Therefore, as of December 31, 1999, dividends available
for payment to the Corporation are limited to $31,286,000. Since the primary
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 to the limits placed on
the Bank, as discussed above.
35
<PAGE>
20. 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, 1999, 1998, and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998*
------------------------------------------------------------------------------------------------------------
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 ............ $ 22,310 $ -- $ 145 $ 5 $ 22,460 $ 20,052 $ -- $ 51 $ 3 $ 20,106
Less loan loss
provision ......... 250 -- -- -- 250 150 -- -- -- 150
------------------------------------------------------------------------------------------------------------
Net interest
income
after loan loss
provision ......... 22,060 -- 145 5 22,210 19,902 -- 51 3 19,956
Other income:
Fees for
investment
management and
trust
services ........ -- 9,784 -- -- 9,784 -- 9,272 -- -- 9,272
Service charges
on deposit
accounts ........ 1,156 -- -- -- 1,156 1,169 -- -- -- 1,169
Other fees and
service
charges ......... 571 -- 762 -- 1,333 571 -- 701 -- 1,272
Net gain on sale
of loans ........ 44 -- 984 -- 1,028 35 -- 1,647 -- 1,682
Gain on sale of
other real
estate owned .... 45 -- -- -- 45 224 -- -- -- 224
Other operating
income .......... 1,115 -- -- 4,568 5,683 631 -- -- 1079 1,710
------------------------------------------------------------------------------------------------------------
Total other
income ............ 2,931 9,784 1,746 4,568 19,029 2,630 9,272 2,348 1,079 15,329
Other expenses:
Salaries-regular .. 7,251 2,852 469 1,874 12,446 6,489 2,863 417 520 10,289
Salaries-other .... 1,754 230 78 184 2,246 1,692 386 117 180 2,375
Fringe
benefits ........ 1,474 565 80 215 2,334 1,232 549 74 53 1,908
Occupancy ......... 3,090 476 149 456 4,171 2,793 422 62 180 3,457
Other operating
expenses ........ 5,218 948 310 1,726 8,202 5,003 898 400 618 6,919
------------------------------------------------------------------------------------------------------------
Total other
expenses .......... 18,787 5,071 1,086 4,455 29,399 17,209 5,118 1,070 1,551 24,948
------------------------------------------------------------------------------------------------------------
Segment profit
(loss) ............ 6,204 4,713 805 118 11,840 5,323 4,154 1,329 (469) 10,337
Intersegment
(revenues)
expenses .......... 176 181 -- (357) -- 38 181 -- (219) --
------------------------------------------------------------------------------------------------------------
Segment profit
after
eliminations ...... $ 6,380 $4,894 $ 805 ($ 239) $ 11,840 $ 5,361 $4,335 $ 1,329 ($ 688) $ 10,337
------------------------------------------------------------------------------------------------------------
% of segment
profit
(loss) .......... 52% 40% 7% 1% 100% 51% 40% 13% (4%) 100%
Total assets at
December 31 ....... $398,546 $ 413 $27,337 $10,524 $436,820 $369,556 $ 455 $16,532 $ 5,297 $391,840
Capital
expenditures ...... $ 759 $ 95 $ 14 $ 236 $ 1,104 $ 2,108 $ 370 $ 93 $ 30 $ 2,601
Depreciation and
amortization ...... $ 693 $ 162 $ 29 $ 435 $ 1,319 $ 1,146 $ 139 $ 16 $ 106 $ 1,407
<CAPTION>
1997*
----------------------------------------------------
Mortgage All
(in thousands) Banking Trust Banking Other Consolidated
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest
income ............ $ 18,368 $ -- $ -- $ -- $ 18,368
Less loan loss
provision ......... 200 -- -- -- 200
----------------------------------------------------
Net interest
income
after loan loss
provision ......... 18,168 -- -- -- 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 ......... 791 -- 587 -- 1,378
Net gain on sale
of loans ........ (582) -- 1,091 -- 509
Gain on sale of
other real
estate owned .... 379 -- -- -- 379
Other operating
income .......... 528 -- 4 370 902
----------------------------------------------------
Total other
income ............ 2,240 7,698 1,682 370 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
Intersegment
(revenues)
expenses .......... 50 181 -- (231) --
----------------------------------------------------
Segment profit
after
eliminations ...... $ 4,743 $3,654 $ 1,037 ($ 354) $ 9,080
----------------------------------------------------
% of segment
profit
(loss) .......... 52% 38% 11% (1%) 100%
Total assets at
December 31 ....... $368,839 $ 158 $ -- $ 5,213 $374,210
Capital
expenditures ...... $ 1,462 $ 80 $ -- $ -- $ 1,542
Depreciation and
amortization ...... $ 885 $ 105 $ 3 $ 98 $ 1,091
</TABLE>
Bryn Mawr Bank Corporation, Tax Counselors of Bryn Mawr, Inc., Insurance
Counselors of Bryn Mawr, Inc., Bryn Mawr Brokerage Company, Inc., CDC Capital
Management, Inc. and Joseph W. Roskos & Company have all been aggregated in All
Others.
*-Reclassified for comparative purposes.
36
<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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 20, 2000
37
<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 20, 2000 on our audits of the consolidated
financial statements of Bryn Mawr Bank Corporation as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999,
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 9, 2000
57
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,914
<INT-BEARING-DEPOSITS> 13,793
<FED-FUNDS-SOLD> 17,609
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,611
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 338,939
<ALLOWANCE> 4,400
<TOTAL-ASSETS> 436,820
<DEPOSITS> 371,068
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,033
<LONG-TERM> 0
0
0
<COMMON> 5,180
<OTHER-SE> 41,539
<TOTAL-LIABILITIES-AND-EQUITY> 436,820
<INTEREST-LOAN> 25,724
<INTEREST-INVEST> 1,984
<INTEREST-OTHER> 609
<INTEREST-TOTAL> 28,317
<INTEREST-DEPOSIT> 5,857
<INTEREST-EXPENSE> 5,857
<INTEREST-INCOME-NET> 22,460
<LOAN-LOSSES> 250
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 28,980
<INCOME-PRETAX> 11,840
<INCOME-PRE-EXTRAORDINARY> 11,840
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,961
<EPS-BASIC> 1.83
<EPS-DILUTED> 1.75
<YIELD-ACTUAL> 6.12
<LOANS-NON> 792
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,100
<CHARGE-OFFS> 197
<RECOVERIES> 247
<ALLOWANCE-CLOSE> 4,400
<ALLOWANCE-DOMESTIC> 691
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,709
</TABLE>
